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Dealing with Appraiser-Speak

Some appraisers want to completely dictate how their insureds get their cars fixed. Knowing whether what they say is legal or illegal will help you protect your business and customers.

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It’s amazing what you hear from insurance appraisers:

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“You’re the only shop in the county that asks to get paid for that, and we don’t have to pay for it.”

“I’d like to help you out, but my company has guidelines that won’t let me write for that, so take it or leave it.”

“The Insurance Department says it’s illegal for me to pay a higher labor rate.”

“I can’t pay for that unless you show me a paid invoice.”

“Your supplier is asking too much for a used nose. I’ve located one in mint condition for a lot less; call my salvage yard in Bulgaria and they’ll have it shipped out to you by Friday.”

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“Don’t you know that it’s illegal for you to charge a markup on sublet work?”

“Do the work and I’ll write for it later – you trust me for it, don’t you?”

Or, how about what you might hear thirdhand from a customer: “I’ve used your shop for years and always liked your work, but the insurance appraiser said I have to bring my car somewhere else.”

“The insurance guy says that it’ll take a month to get an adjuster out to your shop, but they’ll take care of it in two days if I take it to their preferred shop.”

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“The appraiser told me I’ll have to pay you out of my own pocket for anything more than he wrote in his appraisal, but he guarantees that their referral shop will do it for what he wrote.”

For some insurance appraisers, it seems like the limits of their brazenness are set only by what they got away with yesterday. Some want to completely dictate how their insureds get their cars fixed, and they have no qualms about saying anything to try to get their way, or to make sure that cars don’t get fixed at certain body shops.

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But, how far can an appraiser go? What can he legally say and do? And what
can body shops do to protect themselves and their customers from these appraisers’ shenanigans?

What’s Allowed?
Some might argue that an appraiser should be able to say anything. After all, there is a constitutional right to free speech in the United States of America. In fact, I’ve heard insurance companies use this argument when trying to defend their appraisers in license suspension proceedings.

But free speech is not without bounds. As the Supreme Court declared many years ago, the right of free speech doesn’t give someone the right to scream “Fire!” in a crowded theater. In other words, there are limits on free speech when what’s being said may cause harm to others.

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Courts have been particularly lenient in upholding limits on “commercial” free speech. While an individual can say almost anything while standing on a soapbox at the corner of a park, businesses can be limited as to what they can say. That’s why the Federal Trade Commission can punish advertisers who make false product claims or assess huge fines against radio broadcasters who use four-letter words on the air. Or, why state regulators can set limits on what insurers and their appraisers say and do.

State regulation of insurers and appraisers varies greatly from state to state, however. In my home state of Massachusetts, there are fairly strict regulatory limits set for appraisers. In many other places, there are few limits set by the state, even when appraisers are required to be licensed. It’s imperative that every body shop owner make himself or herself aware of what his or her state laws say about what appraisers can and cannot do.

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But even without specific federal or state regulations, there are other legally enforceable limitations on what an appraiser can say or do. And these limits generally apply in all states.

As an example, it’s illegal for an appraiser to say something slanderous about a particular body shop by lying about the shop to a potential customer. There are usually no criminal or regulatory sanctions that can be imposed against an appraiser who does this, but the appraiser and his insurer (for which the appraiser is acting as a direct agent) can be held liable for money damages for engaging in such conduct. Further, since this type of lie damages a shop’s business reputation, in most states actual damages don’t have to be proved. Speculative punitive damages can be set by a court, based upon how egregious the conduct is and the court’s perception of how much the shop’s reputation was damaged.

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An appraiser also cannot legally lie about a shop with the intention of attempting to interfere with the shop’s business relationship with its customer. If the customer has previously had work done at the shop or has the intention of having work done at the shop, then the appraiser and his insurer can be held responsible for money damages for interfering with the advantageous business relationship that the customer has with the shop. If the customer has already signed a repair authorization with the shop, then the appraiser and his insurer may be held liable for interfering with the existing contractual relationship between the customer and the shop. Generally, these damages must be actual and must be proven. But, in some states, punitive damages can be awarded
as well.

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Another legal limitation may be based on privacy concerns. An appraiser has a constitutional right to free speech, but you have a competing constitutional right to privacy. An appraiser has the right to represent his insurer and try to negotiate a fair repair cost. But he doesn’t have the right to pry into your business records or how you run your business. He’s supposed to make an independent decision as to what it costs to repair a vehicle without relying on you or what’s in your files. The state might have a right to demand to see your records. But, generally, insurer representatives do not. So, you must provide some specifics.

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Steering: No. 1 Complaint
Many of the worst complaints
I’ve heard about insurance appraisers have had to do with steering. That is, trying to influence claimants to go to a particular repair shop – or, worse, trying to influence them not to go to a particular shop. Maybe the appraiser doesn’t like a particular shop or has a personality conflict with the owner. Maybe he thinks the shop is too difficult to negotiate with. Maybe he sees himself as his insurer’s savior, trying to save the company every last dime by influencing claimants to go in a certain direction. Maybe he’s getting a kickback from another shop. Or perhaps his insurer is encouraging him to direct people to its preferred shops, where it has sweetheart deals for discounts. There’s a myriad of other reasons why appraisers might try to steer claimants.

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In a straightforward situation, if an appraiser tells an insured that he can’t use a certain body shop, that is absolutely prohibited in most states (unless the vehicle owner’s insurance policy allows the insurer to directly repair the vehicle, and the insurer actually has it repaired). It’s a violation of a statute or regulation in most states that regulate appraisers, and it merits the filing of a complaint with the state’s licensing agency. Loss of an appraiser’s license, or even the threat of the loss, can be a meaningful way to change wrongful conduct.

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Further, it’s pretty clear that this is an attempt to interfere with a claimant’s advantageous business relationship with his chosen shop. A shop that loses a job because of what the appraiser said can – and should – sue the appraiser and the appraiser’s insurance company. In my opinion, the shop should sue even if the shop owner thinks it may cost him as much in legal fees as he’s going to recover, because the appraiser’s conduct may never end unless he sees that it’s going to cost him to keep doing it. The big problem with all of this, of course, is actually finding out about a customer who was told not to come to your shop and who went somewhere else.

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If the appraiser added to his spiel to the insured a plea not to go to the shop because it didn’t do all of the work it charged for, or because it stole from its customers, or because it intentionally took advantage of its customers, and if what the appraiser said wasn’t true, then the shop may also be able to sue for slander, which is what the appraiser committed when he lied about the shop’s business practices. And, in this situation, the shop can sue even if the customer still ended up choosing it to repair his car and the shop had no actual money damages.

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But even in Massachusetts, which has a law that says it’s illegal for an appraiser to request or suggest that a claimant have his car repaired at a specific shop, steering is often a difficult issue to deal with. That’s because many appraisers have become adept at subtly making suggestions rather than steering people outright. If an appraiser tells a claimant that he can choose to go to any repair facility, but that Joe’s Body Shop charges a higher labor rate than his company writes, is that illegal steering? If what the appraiser said is true, and he made it clear that the claimant can still use Joe’s, maybe it’s not illegal.

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On the other hand, if the appraiser makes it a practice to single out Joe with the intention of steering customers away from Joe, maybe the appraiser is intentionally interfering with Joe’s business relationship with his customers. And, even if what the appraiser says is true on its face, perhaps there’s an intentional, underlying implication that Joe does poor work, or that Joe charges too much, or something else about Joe that may be untruthful.

An appraiser who tells a customer that he’ll have to pay out of his own pocket at Joe’s because Joe charges a higher labor rate than is being written may be lying, because most state laws require an insurer to pay the “reasonable” cost of repair, and insurers cannot unilaterally dictate what’s “reasonable.” The appraiser doesn’t know that a court wouldn’t require the insurer to pay Joe’s labor rate. While it’s not clear, this may be enough to make the appraiser liable to Joe for damages.

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If you’re thinking about suing an appraiser for illegal steering, look at your state’s consumer protection laws and determine if your state has any separate unfair insurance claim settlement laws. These types of statutes often give you additional leverage in a steering suit. They also often provide for additional punitive damages, and maybe even payment of your legal fees.

Consumer protection statutes may also give you an independent cause of action against an appraiser who has told a customer that he’ll be treated differently at your shop. As an example, it may be a violation of a consumer protection law to tell a claimant that an adjuster will take longer to come to your shop, when all shops are required to be treated equally. The same may be said for wrongly telling a potential customer that he’ll have to pay something out of his own pocket at your shop, when the customer may not have to.

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Dictating the Cost of Repair
I find it odd that many bright body shop owners believe what insurance appraisers tell them.

No matter what the insurance appraiser is telling you, you’re never the only shop to ask to get paid for something. Somebody else has already thought of it, and scores of other shops have already gotten paid for it.

No matter what the insurance appraiser is telling you, there’s no state agency anywhere in the country that sets body shop labor rates; you can charge whatever you want.

No matter what the insurance appraiser is telling you, there are no laws making it illegal to charge a markup on sublet work; you still have the responsibility for and have to warranty sublet work, and you can’t stay in business very long if you can’t make a profit on what you sell.

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And what’s this about needing to see your invoices before agreeing to pay for something, and then basing payment on that invoice? Your invoices are your private records, and insurers have no right to see them. Do you go to the grocery store and ask to see its invoices before agreeing to pay $2.49 for a gallon of milk? Of course not. You have the right to charge a fair amount, insurers have the obligation to pay a fair amount and your profit margin is none of insurers’ and their appraisers’ business.

The point is that insurance appraisers don’t have the right to unilaterally dictate the cost of repairs. Insurers are legally and contractually required to pay the “reasonable” cost of repairs, and only courts (or maybe arbitrators or appraisal panels, depending on your state) can ultimately determine what’s “reasonable.” Insurers have no right to set fixed guidelines as to what their appraisers can write, and appraisers have no right to adhere to arbitrary guidelines. Maybe an insurer ultimately won’t have to pay for everything you want, and maybe it won’t have to pay your labor rate. But the insurers don’t have the right to arbitrarily decide this on their own.

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So what do you do about it?

Well, the first thing you need to do is understand that insurers have no right to dictate these issues, and then try to negotiate with that knowledge in hand. The state prohibits the insurer from paying a higher labor rate? Show me the law or ruling that says that. No one else asks for that? So what, I did it and I need to get paid for it. You want me to use an LKQ nose from Bulgaria? You order it, have it shipped, front the money for it, guarantee it, agree in advance in writing to pay for prepping it, agree to pay my stall tie-up time when it doesn’t arrive on time and agree to pay me a profit on the part. Then we’ll see. Want to see my invoices? I’m sorry, but I have no obligation to let you see them. If you get nowhere with an appraiser, try his supervisor. Then try his supervisor’s supervisor.

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And, by the way, when the appraiser agrees to something, have him agree in writing and on the spot. You don’t want to rely on him sending you what may be a completely different damage report a week later, which he seemingly agreed to in your presence.

The second thing you can do is to educate yourself in advance on what you know might be problem issues. If you need to get paid a fair amount for paint materials, calculate what your actual costs are. If you want to get paid for something that a particular insurer won’t pay for, get your documentation together to show what industry guidebooks say, as well as your records that show that every other insurer does
pay for it.

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The third thing you can do is get your customer involved. It’s her car and she has the right to ultimately dictate what to fix and how much she’s willing to pay – despite what her insurer is telling you. If you’re having trouble with her insurer, explain the problem to your customer and see if she’ll talk directly to her insurer about it. I know at least one shop owner who finds it useful to have his customer present when an appraiser is coming to see a problem repair job. He says
that appraisers find it a lot harder to
say “no” when their insureds are
facing them.

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The fourth thing you can do is report an appraiser to a governing regulatory agency. If appraisers are licensed in your state, make a complaint to the licensing authority. If appraisers aren’t licensed, then insurers surely are. Appraisers are acting as their insurers’ agents, and if the appraisers are doing something wrong, then so are their insurers. Perhaps trying to dictate the cost of repair violates your state’s insurance claims settlement laws or some other consumer laws. There’s almost always some state agency that oversees these laws, so find that agency and file a complaint with it.
The fifth thing you can do is sue an insurer, or invoke whatever other remedies may be available to you, for what the appraiser won’t pay. You may have to get your customer to assign his rights to you against his insurer. But, if you can do that, you can stand in your customer’s shoes and assert whatever rights he has against his insurer. If your state provides for it, you can invoke an appraisal clause in the insurance contract, or you may be able to demand arbitration of the reasonable cost of repair. Or, depending on the amount of money involved, you make be able to sue in small claims court. Or, ultimately, you may have to bring a civil action for breach of contract. Be aware that you might lose. On the other hand, be aware that you
might win.

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Unfortunately, being in the body shop business means having to deal with the shenanigans of some insurance appraisers. But it’s imperative that you recognize what appraisers can and cannot legally say and do. And, it’s also imperative that you know how to deal with appraisers when they get out of line.

James A. Castleman is a partner in the law firm Paster, Rice & Castleman in Quincy, Massachusetts. He’s represented various autobody trade associations and individual body shops for more than 25 years.

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