1. If someone comes in for an estimate and they just want to take the money and not fix any damage and the insurer puts our name along with theirs on the check, should we just sign it over to them?
First of all, I am not an attorney so I cannot provide legal counsel. If a legal opinion is required, I encourage you to seek out a licensed attorney in your area who’s familiar with your state’s laws and regulations.
I can, however, offer my personal opinion based upon my knowledge, training and experience. I understand your concerns and offer the following advice to help protect you, your company and your customers.
Explaining why we did away with “free estimates” in my shops in the mid-1990s will help address your first question. I took preparing estimates seriously, so we spent a great deal of time performing the necessary inspection and research to ensure that every process, part and material needed was listed and charged for. We studied the P-pages relentlessly and stayed up on the slightest changes in the estimating platforms to be as accurate as possible.
We tracked our company’s “estimate-to-sale ratio,” and for years we had a very good estimate-to-repair “closing rate” of 85 to 95%. Then, for no apparent reason, I began to see a drop in our closing rate and an increase in what we referred to as “missed opportunities.” After conducting follow-up phone calls to people we didn’t close, I learned that another local shop was sending customers to us to obtain our in-depth estimate with the promise that, if the customer submitted our estimate to the insurer for payment, the shop would save their deductible or offer a financial kickback if they got the repair.
As a result, we changed our marketing ads and signage and began offering a “free consultation.” This provided us the opportunity to sell ourselves and offer customers our “comprehensive damage assessment services,” which were provided at a reasonable fee. At the time, we charged $50 plus 3% of the estimated amount with the understanding that if they chose to have repairs done at our shop, we would credit the fee to their repair. Additional services at added costs were offered to perform limited dismantling to ascertain the full extent of damages if it was believed to be advantageous to the customer. Reassembly was offered at an additional fee if they elected to not have us repair their vehicle.
Furthermore, if the customer was merely looking to “cash out,” we offered a valuable service to ensure that they received a fair and accurate settlement rather than a lowball estimate they would get from an insurer and other shops. We referred to this as “getting their bucket full” to ensure they received all they were entitled to, which made our services valued and appreciated by our customers.
We generally found that once we revealed the full extent of the damages, including safety-related issues, most customers would choose to have the vehicle repaired. However, some vehicles were deemed to be total losses, and the insurer was then responsible for paying the comprehensive damage assessment service. For those customers who didn’t elect to have us do the repairs, we gladly signed their insurance draft/checks because we valued them and their future referrals. In some cases, we took the check in as payment for our services and provided them our company’s check in return for the difference (which enabled tax adjustment of income vs. expense). In other situations, where something just didn’t feel right or we had sufficient reason to not offer the courtesy, we declined and suggested the customer have the draft reissued in just their name or in their name and their lienholder’s name. One that comes to mind was when a customer asked that we take his personal check for the payment of our billing and endorse the insurance draft so he could deposit it. We declined.
There may be some instances where the repairer may incur some potential tax liabilities. An example might be when an insurer compels the repairer to provide their federal ID number so a 1099 or other IRS document can be prepared and filed, suggesting that the repairer received compensation that is subject to taxation as “income.” To prevent any issues like these, you should have a discussion with your corporate certified public accountant.
Generally speaking, the only time another party would be listed on the insurer’s check would be where there is more than one owner or where a lien remains against the vehicle and where the state mandates protecting the lienholder by including their name. This enables the lienholder to endorse the check only after the vehicle has been properly repaired and the vehicle’s value and their collateral restored. In most, if not all, states, this is only relative to payments being made to the policyholder (first party) and normally not applicable to a third-party claimant who is making a claim under the at-fault party’s insurer. Insurer payments to third-party claimants are generally made payable to the vehicle owner only.
2. What if someone brings an insurance-approved estimate in and only chooses to repair part of the damages but we have a supplement on the parts they did repair? Are we still allowed to supplement for those parts?
This is where it’s imperative that the collision repairer understands and remembers who it is they work for. To properly serve your customer (the one who signs your repair authorization/contract), it’s important to understand that you have a professional, moral, ethical, and in most states, legal obligation to ascertain all loss-related damages to ensure that your customer’s vehicle is properly repaired. Or, that your customer receives proper compensation to enable them to be “indemnified for their loss” or to “make them whole.” As such, you should submit all supplements for a proper and thorough repair for all loss-related damages to assist your customers in “getting their bucket full” whether they elect to have repairs done in their entirety or not. It would not be unreasonable for a repairer to assess an administrative fee for their efforts if deemed appropriate. You shouldn’t provide your time and services for free, and no one should expect you to do so.
Note: An “insurance-approved estimate” is not a legal binding document or a mandate the customer or the shop must abide by. It is only the insurer’s accounting of what they’re providing payment for and how much. It would behoove repairers to prepare and provide their services based upon their own “estimate” or comprehensive damage assessment.
3. If someone brings in an insurance-approved estimate with OEM parts and they want aftermarket parts put on so they get paid back money, is that fraud?
No. Keep in mind that the insurer’s responsibility is finished when they issue payment. Payment is not contingent on if the repairs are done or if only a portion is done. The proceeds become the customer’s, and they can do with them as they wish. After all, it’s their money. The only caveat here is if a lienholder may have a remaining interest in seeing that the vehicle is properly repaired. Lienholders don’t like it when they repossess a damaged vehicle, especially a totaled one! This is why many states have laws to protect them by requiring that their name be added to an insurer’s payment check.
You are likely not an attorney, just as I am not, and so you would do well to avoid offering legal advice or warnings to others regarding what is or isn’t legal. Because repairers have a duty to protect their company and staff from being placed in harm’s way, they should be readily familiar with their state’s laws, regulations, codes and restrictions that govern the automotive repair industry as well as insurance claims practices. I encourage my repairer coaching/consulting clients to develop written internal handling policies and procedures to handle such matters. This enables you to fall back on using the old saying, “I’m sorry, it’s against our company’s policy.”