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Is it Legal for Insurers to Settle Losses for My Customers’ Vehicles?

Why doesn’t the DOI enforce the contract between the vehicle owner and the insurer? And how is it legal for insurers and DRP shops to settle losses for my customers’ vehicles?

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Writer E. L. Eversman is the General Counsel for Vehicle Information Services, Inc., award-winning author of the AutoMuse® blog and a frequent speaker and author on automotive consumer and legal issues.

“The New Hampshire Department of Insurance (DOI) claims that the contract/policy determines what is owed to the vehicle owner when they filed a claim. So why doesn’t the DOI enforce the contract between the vehicle owner and the insurer? And why and how is it legal for insurers and DRP shops to settle losses for my customers’ vehicles?” – Steve Piispanen, owner, Keene Auto Body, Keene, N.H.

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Let me begin by addressing the second part of your question. If I read the second part of your question correctly, you’re asking why the DOI allows the insurer to use costs derived from likely repairs at its DRP to be the basis of settling a claim for loss, rather than paying the costs you, as a shop independent of this insurer, charge.

State statutes or regulations governing how an insurer is permitted to settle a property partial loss claim (as opposed to a total loss claim) typically allow the insurer to base its settlement offer to the consumer on an estimate the insurer prepares. If the insurer’s estimate is lower than yours, the insurer is required to pay the difference (pay the amount of your estimate), unless it can identify one or more repair facilities that are willing and able to perform the repairs for the insurer’s amount.  The insurance regulation that states this concept in New Hampshire is N.H. Code R. Ins 1002.17.

These provisions were originally intended to ensure that what an auto insurer was being asked to pay for repairs was reasonable, and to prevent the customer and repairer from engaging in a scheme to inflate the repair costs. However, many insurers now simply state that the DRP shop down the street will agree to perform repairs for the insurer’s amount without ever contacting the DRP shop to see if that position is true. This has become a significant problem for the modern collision repairer that invests in the shop, purchases the necessary equipment, has employees properly trained and attempts to compete in a free market. The issue you’re seeing is one in which the marketplace in which you compete is not free and all shops do not belong in the same marketplace. Yet, they’re all treated by insurers as if all repair facilities are equal.

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Enforcing the Contract

This leads to the first part of your question, why doesn’t the DOI enforce the contract between the insurer and insured? The state would tell you that it does. This is because insurance policies often leave provisions nebulous.  Policies don’t typically identify what the insurer is willing to pay for a labor rate, how much time an insurer will pay for a particular procedure or whether the insurer will honor OEM procedures. In part, this flexibility is understandable as an insurer can offer a policy that does not need to change frequently to accommodate changes in repair techniques or pricing. This nebulousness, however, also allows insurers to argue that they’re paying “fair and reasonable” amounts for consumers’ repairs in a given marketplace without specifically identifying what is necessary to properly and safely repair a vehicle.

It also does not help that statutes and regulations are written without specificity as to what constitutes “fair and reasonable.” Just like the policies, laws are written to provide flexibility and require interpretation. That’s the reason why repairers have repeated struggles with insurers over securing meaningful payment for the repair work performed. Once a DOI has determined that the insurer’s offer of settlement to a consumer for a repair suggested by a DRP shop that may have agreed not to charge for particular activities is acceptable, the insurer relies on this determination as a standard it can follow.

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Although this doesn’t sound encouraging, you may find some relief in New Hampshire’s regulation addressing what constitutes an “able and willing” repair shop. NOTE: I am not licensed in New Hampshire and you should take this issue to an attorney who is licensed in your state.

The regulation begins with this provision:

Every settlement offer that is based upon an appraisal conducted on behalf of the insurer relative to property and liability insurance shall:

(1) Represent the fair and reasonable price in the area charged by repair shops or facilities providing similar services with the usual and customary guarantees as to materials and workmanship; … – N.H. Code R. Ins 1002.17 

This provision could be argued to mean that there are differences between shops and the types of services they provide. For example, an Audi certified repair facility is probably better trained and equipped to perform Audi repairs than a shop that is not certified by the OEM.

N.H. Code R. Ins 1002.17 goes on to say that in the event of a dispute, the proper amount of settlement will be determined by an “independent” shop:

(g)  If an independent repair shop or facility and an insurer are unable to agree on a price, and the insurer has complied with (a) through (f) above, then:

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(1)  The price shall be the price available from any other recognized, competent and conveniently located independent repair shop or facility that is willing and able to repair the damaged motor vehicle within a reasonable time…

There is a perfectly reasonable argument to be made that the use of the term “independent” in the regulation is deliberate and means a repair facility unaffiliated with the insurer or with you. This would mean that the insurer could not base settlement offers on its DRP pricing. Arguing that the determining repair facility be independent of either the shop or the insurer allows for fairness to the person making the claim.  

Bringing your concerns to the DOI is an important step in this process. Without being told that professional repairers are frustrated with the reimbursement received on behalf of insureds, the department personnel will never know there is a problem. Without that knowledge, you can be sure that nothing would ever change.

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