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Dealing with State Farm

“Every shop in this country deals with State Farm, and they all understand that SF can, if it wants, put them out of business. In many markets, it will be a ‘take it or leave it’ situation,” says a shop owner about SF’s revised contract for its direct-repair shops. “I depend on SF insureds and claimants about 50 percent of the time. I, like every other shop owner, have some hard choices to make.”

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When SF recently revised its DRP contract – requiring shops to return the vehicle to pre-accident condition, to consider the use of aftermarket (A/M) or used parts and to agree to indemnify SF in the event of a lawsuit based on willful misconduct, negligent acts or omissions – a lot of shop owners got nervous. Are they becoming scapegoats? Are shops now assuming complete liability, including loss of market value, for the insurance giant?

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Granted, all shops accept liability for the work they perform, but the contention here is that SF not only wants to dictate how DRP shops repair a vehicle, but also wants to pawn off responsibility for that repair.

“State Farm does not fix cars. State Farm pays to fix cars,” said Robert Shultz, State Farm’s lead attorney at the insurer’s appeal of the $1.2 billion class-action verdict regarding the insurer’s use of A/M crash parts. Though the judges hearing the appeal didn’t buy it – SF’s policy with its insureds guarantees their vehicles will be repaired to pre-accident condition and the insurer’s advocacy of non-OEM crash parts made this guarantee impossible – Shultz’s argument revealed what many consider a new SF strategy: Blame the collision repairer.

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Were Shultz’s comments an omen? Are SF’s DRP contract revisions all part of this new strategy?

Granted, SF isn’t the first insurer to include the “pre-loss” and “indemnifying the insurer” provisions in its DRP contracts. Other insurers – such as USAA – already have such provisions. But based on SF’s history of dictating repairs – along with what could be interpreted as a “blame the repairers” mentality – the provisions seem scarier in a SF contract. But do the changes really change anything?

“If an insurer got sued on the basis of an inadequate repair because a customer says the repair diminished the value of the auto, then the insurer might well point to the body shop and contend the shop hadn’t repaired the vehicle to its ‘pre-loss condition.’ But what’s new about that?” says Susan Martin, the attorney who wrote “Pointing Fingers” on pg. 26, which addresses DRP contracts and liability. “Any time you have a contract between essentially a consumer and two parties to provide a service or product, each will be blaming the other in the event of product failure. When a shop signs one of these agreements, it’s always put in the potential position of becoming embroiled in any complaint the policyholder makes against the insurer.”

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What makes State Farm different is that it’s the country’s largest insurer. “The more people involved, the more people get sued,” says Martin. “Proving the suit – showing a vehicle could be repaired to pre-loss condition – would be a matter for trial. I’d advise a client who’s considering a DRP to think twice about saying it can repair a car to pre-loss condition.”

So what are your options? “You play in their ballpark, you play by their rules,” says Martin, who advises reading the contract carefully and not signing unless you’re willing to accept the responsibility – and liability – that comes with it.

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But that still may not be enough. “Alas,” says Martin, “there are always two sides – or more – to everything.”

Or, as a wise shop owner told me, “Liability can be found wherever an attorney chooses to look.”


Editor Georgina Kajganic can be reached by e-mail at [email protected]

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