A federal appeals court has reversed portions of a lower court’s ruling in Nick’s Garage v. Progressive and Nick’s Garage v. Nationwide, reviving the collision repairer’s lawsuit against the insurers for alleged breach of contract and deceptive business practices.
Nick’s Garage of Syracuse, N.Y., filed the lawsuits as the assignee of some of its customers’ claims against the insurers. The lawsuits accuse the insurers of breaching their contractual obligation to pay the amount necessary to repair their customers’ vehicles to pre-accident condition, and of deceptive business practices in claims processing.
Previously, the U.S. District Court for the Northern District of New York ruled in favor of the insurers, dismissing the respective lawsuits.
On Nov. 8, however, the U.S. Court of Appeals for the Second Circuit disagreed with enough of the lower court’s ruling that a substantial portion of the cases can proceed.
Regarding the breach-of-contract allegation, the appeals court vacated most of the lower court’s decision in Nick’s Garage vs. Progressive. The appeals court gave Nick’s Garage the green light to proceed with its breach-of-contract case against Progressive for all costs other than paint materials.
The appeals court also vacated the lower court’s dismissal of the allegation that Progressive engaged in deceptive business practices concerning its labor-rate payments, although the court affirmed the dismissal of the allegation that Progressive misled customers regarding their ability to use their repair shop of choice.
Attorney Erica Eversman, chief counsel at Vehicle Information Services, says the decision in the case hinges on the language of Progressive’s auto insurance policy, which explicitly states that Progressive will pay the competitive rate as determined by the insurer.
“Strikingly, the court says in the Progressive case that the competitive market labor rate is not the rate that Progressive can convince a shop to accept with its market power and multiple jobs, but includes the rates for the entire marketplace (all insurers, private pay, etc.),” Eversman says in an email. “ … Nonetheless, the court noted that Progressive doesn’t perform labor-rate surveys, so it essentially can’t say that what it was willing to pay accurately reflected the rate in the overall marketplace.”
Eversman finds the appeals court’s decision in Nick’s Garage v. Nationwide “equally interesting.”
“First, Nationwide’s policy obligation was to pay a sufficient amount to repair the vehicle for what the claimant (i.e. the consumer) could reasonably be expected to obtain the repair,” Eversman explains. “Also, the court identified that there was evidence that Nationwide and other insurers were concealing the true effective labor rate they were paying by engaging in lump-sum payments (concessions) or by adding additional labor hours to the estimates (without changing the labor rate fields in the software) to maintain the appearance that shops were accepting the low (disguised) labor rate in the estimates and subrogation data.”