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Know Your Customer

Insurers are contractually responsible to reimburse their insureds for the reasonable costs of repair. Shops are contractually responsible to the owner of the vehicle for performing a repair as per the estimate/RO. In other words, you have no legal obligation to negotiate with insurers.

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Body shops deal with insurers on a daily basis, and most shops depend on the payments that the insurers make in order to stay in business.

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Because of insurers’ attempts to exercise control over the repair process and because of body shops’ dependence on insurer payments, body shop owners tend to see insurers as all powerful, with the ability to control shop profits.

This perception is somewhat understandable. After all, the vast majority of auto damage claims in the United States are paid for by insurance. Insurance personnel evaluate liability for claims, make appraisals of damage, negotiate costs of repair with body shops and ultimately authorize payment for the claims. In doing this, insurers develop hard and fast rules that they attempt to foist upon their customers and their customers’ repair shops – rules dealing with what types of repairs the insurer will pay for, how work should be done, what labor rate they’ll pay and how much they’ll pay for parts.

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Because this isn’t going to change, body shops need to take a harder look at the system and take control of their businesses and profits. While insurers are powerful, the reality is, they can control the body shop industry only as long as body shops allow them to.

Legally, it’s only the customer to whom shops owe a duty. Insurers are only third-party payers that are contractually responsible to reimburse their insureds for the reasonable costs of repair to their vehicles. In my 30 years of representing body shops, it’s my experience that the shops that understand this relationship are the ones that are the most profitable and have the most content owners.

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As a shop owner, you have to develop your own business plan. What follows are four suggestions that you may wish to consider as part of your particular plan.

Deal only with your customer and ignore his insurer.
To many of you, this idea may seem impossibly radical. But in most states, you have no obligation to or contractual relationship with insurers. Your customer is the only person or entity whom you have a responsibility to or a contractual relationship with.
As long as your customer agrees, you can contract for whatever repairs are truly appropriate, at whatever labor rate you need, utilizing whatever procedures you believe are necessary. Ignore what your customer’s insurer reimburses as a labor rate; ignore what parts the insurer wants you to use; ignore how the insurer wants the repairs to be accomplished. Make a contract for repair with your customer, let him worry about how much his insurer is going to pay and look to your customer to pay the difference between what his insurer pays and what you’re charging.

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Most shops believe that ignoring insurers would be suicidal. And for many of you, that may be true. But, if you realize to whom you actually owe the obligation to do proper repairs and if you can market yourself properly and develop the right customer base, then you may be able to develop a business where you set your prices, deal only with your customers and don’t have to deal with pressure to perform substandard repairs. You may actually be able to provide quality work at a fair price.

This idea works best for shops with niche markets. Do you do mostly restoration work? Do you specialize in repair of high-end or specialty vehicles? (Owners of high-end vehicles often are willing to pay an increased labor rate for mechanical repairs; why not for body repairs?) Do you have unique equipment suited to particular vehicles or repairs? Are your customers sophisticated enough to be able to understand what they’re getting for their money? Do they have the ability to deal with their insurer on their own? Can you afford to lose the business of those customers who insist that you accept what their insurer wants to pay? Can you afford not to lose those customers?

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Get your customer involved with the repair of his vehicle.
Again, your customer is the one to whom you owe a legal duty to make proper repairs. While many customers may want to just drop off their car and have you deal with their insurer, it’s usually in your best interest to resist that method of doing business and to keep your customer involved with all aspects of the negotiation and repair process.

In most states, in fact, there’s actually a legal requirement to get your customer’s approval before starting repairs to his car; it’s usually not enough to get just the approval from the customer’s insurer.

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No matter what an insurer approves and is willing to pay for, in some circumstances, a customer may want better repairs made. In other circumstances, a customer may want fewer repairs made. In some other circumstances, a customer may want different repairs made.
In most cases, your obligation is to do what your customer wants, not what his insurer wants.

Customers generally want the best possible repairs for their vehicles. A customer who’s educated as to the difference between an OEM part and an aftermarket part may want you to use OEM, no matter what his insurer says. Perhaps the customer will agree to pay the difference out of his own pocket. Perhaps the customer will take an active role in convincing his insurer to pay the difference. Neither scenario is possible, however, unless the customer is first informed of the choices that exist.

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Getting your customer involved when supplements are requested – something that most shops would never think of – can be particularly effective. Again, your state law probably requires you to inform your customer and to get his approval for supplemental work. Yet most shops ignore this. And insurers rely on lack of customer involvement when they attempt to force you to take what they’re willing to allow for a supplement payment.

But if you inform your customer that hidden damage was discovered, additional parts are needed or additional work is required to make the car right, the customer is more likely to be sympathetic to your position and more likely to be helpful in dealing with their insurer.
Once your customer is educated as to what’s wrong with his car and what’s needed to properly repair it, then guide your customer on how to assist you in getting paid what you truly need from his insurer. Attempt to get your customer to personally make calls to his insurer to try to get authority for additional repairs. Or, even better, have your customer present when an insurance appraiser is coming to your shop to negotiate a supplement. You may be surprised how many insurance adjusters are willing to say "yes" to your customer when they would have said "no" to you.

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Get your customer to assign his rights to you.
Even if you don’t want to ignore your customer’s insurer and even if you don’t relish getting your customer involved in the repair process, this is something that you should absolutely be doing.

An assignment of your customer’s rights against his insurer to you should be in writing. It can be a separate document, or you can put it on your repair order. But, if you can get your customer to actually assign to you whatever rights he has against his insurer or to appoint you as his representative in dealing with his insurer, then you may have more leverage when dealing with his insurer.

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Getting an assignment of your customer’s rights may not help you much at the beginning of a claim. An insurer may continue to deal with you the same way that they always have. But, if you have a problem negotiating with the insurer, then the assignment of rights may give you added leverage. Why? Because the assignment gives you the legal right to stand in the shoes of your customer. If you reach an impassé with the insurer, you may be able to demand arbitration of the claim (if allowed in your particular state) or, if it gets that far, you may be able to sue the insurer directly for amounts you believe you are due.

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Do not forget. Your customer is entitled to be paid the "reasonable" cost of repair to his vehicle. Just because an insurer says that it’ll pay only a certain amount doesn’t mean that amount is reasonable.

But without an assignment of your customer’s rights, you have no direct recourse against the insurer; with the assignment, you have the right to seek redress directly against the insurer.

Over the years, I’ve had several body shop clients successfully use assignments of their customer’s rights to sue insurers for repair cost differences that they believe they’re due. If the difference is small enough and if your state allows it, small claims court may be an appropriate forum in which your shop may seek to enforce its customer’s rights.

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If your state has a consumer protection law, you may be able to seek punitive damages from the insurer for failing to deal fairly with you. I have one body shop client who got an assignment of rights from his customer and was able to get a court to award more than $10,000 in damages on a dispute with an insurer over an $83 difference in labor charges.

If you’re going to deal directly with your customer’s insurer, be smart about it.
For those of you who are going to continue to deal directly with your customers’ insurers, there are some basic rules – based upon your primary duty being to your customer – that you should not ignore:

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•First, always write your own appraisal before dealing with your customer’s insurer. Many shops complain that it’s a waste of time to write their own appraisal because they’re just going to have to do the job the way the insurer wants anyway. If a shop has this attitude, then what it believes is going to happen will be what happens.

But, if you write your own estimate, then you know what you’re looking for before the insurance appraiser walks into your shop. You know what you’re looking for before you get your customer to sign your repair order. You know what you need to properly repair the vehicle, and you have a good base from which to negotiate.

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You also know whether an insurer’s appraisal makes sense, and you know when it’s impossible to do a proper repair for what an insurer has written.

Shops that write their own appraisals tend to do much better in the negotiating process, know what to ask for when requesting supplements and know which jobs they don’t want to even attempt.

•Second, always get both your customer’s and his insurer’s approval prior to starting repairs. And, whenever possible, make sure those approvals are in writing. Too many times, body shop owners believe that they’ll be able to negotiate additional costs of repairs after they’re completed. The shop owner wants to get the job done and the car out the door. But once the work is done, any leverage you have is lost. Insurers claim they want to see what’s needed before they approve it, and they cannot see what’s needed after it’s repaired. And where’s their incentive to pay you more when you’ve already done the work?

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By the same token, how do you know what your customer wants if you do not seek and get his permission to do it? Once more, don’t forget that it’s your customer to whom you owe a contractual obligation, not his insurer. Further, if you have your customer’s approval before you attempt to get approval from his insurer, you have that much more bargaining power with the insurer. And, when push comes to shove, you then have the ability to ask your customer to call his insurer directly to help you get what you need to do proper repairs.

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•Third, if possible, always try to get insurance appraisers to write their appraisals at your shop. Usually, there’s no reason why they can’t do this. In fact, at least in my state, certain insurers pride themselves on the ability to be able to do this. It speeds up the repair process, and it encourages a meeting of the minds between the insurer and the body shop before the repair proceeds.

If an appraiser writes his appraisal at your shop, then you can immediately negotiate what you need to do the repair and you immediately know where you stand

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If an appraiser won’t write his appraisal at your shop, then let him know that you won’t continue with repairs until you receive his appraisal in hand. The appraiser may complain and moan, but insurers have incentives to try to get repairs done quickly and to get their insureds out of their rental cars. No matter what the insurance appraisers say, let them know that it’s their fault that repairs are being delayed. And let them know that repairs won’t begin until you receive an appraisal that you agree with. Don’t buckle under the pressure they attempt to apply. Learn to just say "no."

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Take Control
It’s imperative that body shops recognize who their true customers are – and realize that insurers are only third-party payers. Until this occurs, body shops are going to continue to be controlled by insurers.

There are, however, strategies shops can use to take back control of their industry. Look at the suggestions made in this article. Decide whether other techniques that recognize your true relationship with insurers may work to improve your bottom line. Decide what works best for your particular business model and try to incorporate it in the way that you conduct your business. At the end of the day, you just may find yourself a little happier and with a little bit more money in your pocket.

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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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