Liability For Sale - BodyShop Business

Liability For Sale

With more than $3 trillion in assets belonging to the insurance industry, the acceptance of liability must be a valuable commodity — and the sale of liability must be a profitable business. So why are you only charging the wholesale time it takes you to do a task without financial consideration for the liability you accept?

The word "liability" is heard often in the collision repair trade. Most shop owners think of it as the trouble they’d be in if something were to go wrong in their businesses.

What liability is, in fact, is a legal responsibility that provides for a cause of action (lawsuit) and monetary recovery. But what most shop owners fail to realize is that acceptance of liability is also a commodity that can be bought and sold.

When you purchase car insurance, you give the insurance company money; it then accepts liability for the damages you may cause.

Insurance companies do little else but sell the acceptance of liability, but with more than $3 trillion in assets belonging to the insurance industry, the acceptance of liability must be a valuable commodity, and the sale of liability must be a very profitable business.

Shops could do well to learn from their example. Collision shops accept liability all day long on every vehicle they come in contact with but, in most cases, they don’t charge for this acceptance. Regardless, as soon as you have a consumer drop off his vehicle, you’ve created what’s known as a "legal bailment." From that moment on, you’re legally responsible for everything that happens to the vehicle while it’s in your possession. Why? Because many insurance policies include a hidden "no benefit to bailee" clause that, in essence, means coverage stops the moment the vehicle enters your shop till the moment the consumer picks it up. That’s why storage charges should be an automatic and integral part of a shop’s billable charges.

Estimate Liability
With the writing of the estimate comes additional liability, and several factors are incorporated into this area of liability: First, there’s potential negligence for not identifying all of the required operations to restore the vehicle to its pre-loss condition — which is why it’s important that a shop owner understand his obligation to act as a repair professional and to list all damages found and the full amount required to provide that service. By doing this, the owner accepts the liability on and guarantees those procedures. Even if the consumer and his insurance company refuse a procedure, you can prove that you brought it to their attention and offered to fix it. With their refusal, liability is then transferred back to the consumer and his insurer for their election not to have the specified repairs completed. To protect the shop, however, the notice, offer and refusal must be documented.

Also, the principle of "offer and acceptance" creates additional liability, so a shop owner must know his cost of providing each valuable procedure and charge according to the value of that service. A shop owner should never provide a service at a loss.

If an insurance company offers a shop $30 to fix a frame, the shop has two choices: Accept it or refuse it. If the shop accepts it then, technically, the shop has agreed to restore the frame to factory tolerances for $30. If a later accident raises questions about the frame repair, the shop can be in tremendous legal trouble, and it’s not a valid defense to say, "The insurance company didn’t pay me to fix it right." It’s also not good legal defense to say, "We only got paid to fix a portion of the frame." It’s all or nothing, and a shop must realize that it’s not better to get paid "something" rather than nothing.

The general premise here is that if you needed more time or money to properly repair the frame, why didn’t you ask for it? If you didn’t ask for more, then you must have thought the offer was adequate. We’ve seen many insurance companies in court say, "If they’d just asked for it, we would’ve been glad to pay for it."

If you can’t prove you asked for the procedure and full, fair compensation, you’ll be stuck with the liability. That’s why it’s so critical for shops to document that both the consumer and the insurer knew of your professional and expert opinion and the cost regarding each procedure, yet they refused the procedure. WreckCheck operators use a Notice of Deficiency to accomplish this vital task. Insurance companies are counting on shops being too lazy to document the full notice and requests in writing. Don’t fall into this trap!

If a shop refuses to undertake an underpaid or unpaid procedure, the liability passes onto the one refusing to perform or fully pay for the procedure, i.e. the insurer and the vehicle owner. Even after partial repair, it would be advisable to have any unsafe vehicles towed from your facility if the consumer and insurer refuse to authorize and pay for necessary procedures. It’s equally as important to get written acknowledgment from the consumer that he was informed of the potential danger of any incomplete repair.

Repair Liability
Liability for the repair itself comes in many forms, but basically boils down to the things you should have done but didn’t and the things you should not have done but did.

Each repair procedure listed on an estimate creates an additional liability associated with that particular procedure. A line item for seam sealing at $5 creates a liability for a watertight repair. How many times has a car come back to your shop with a water leak and you spent hours tracking it down and fixing it at no charge? The reason you did this is because you knew the liability was yours because you accepted $5 for seam sealing.

Were the labor and materials required for the seam sealing worth the $5 you accepted when liability is a factor in pricing? Liability must be a factor when pricing a procedure.

How much is that liability worth to you? Do you think it’s worth more than $5 to the consumer and insurer to have an expert guarantee a watertight repair with full corrosion protection along all welded panels? What would that be worth?

If you’d demanded $50 to $150 to seam seal the vehicle and the insurer and owner refused, you’d have passed all the liability for any water leak right back where it belongs — to the insurer who refused the procedure. It’s not a question of whether or not you can or can’t do proper seam sealing. It’s not a question of whether or not you operate a quality facility. It’s a question of whether the insurer and vehicle owner are willing to pay for that valuable service, which requires your invested time, labor and materials.

If you think your time, labor and materials are so worthless that you’d give them away for free, then no one will ever pay you for them. Frankly, if the request and proper payment for a procedure are denied, then it shouldn’t be provided. If the shop decides to do it anyway, then the shop becomes liable if it isn’t done properly.

Few shops other than WreckCheck facilities charge based on dollars, not hours. Selling your time creates an additional liability. If you write or accept estimates based on hours (or units), you’re not selling anything more than the time it physically takes the technician to do that procedure. There’s no payment for liability included in time. The insurer can’t give you an "extra" 30 minutes to accept liability. And don’t believe for a minute that liability is an "included operation."

Additionally, if it’s proven that you didn’t spend at least the full amount of time paid for each procedure, charges of fraud can be brought against you. At your trial for negligence for improperly repairing a vehicle, it wouldn’t be difficult for the plaintiff to allege that you didn’t spend the full time you were paid to accomplish those critical procedures. It would be very difficult, however, for you to prove you did.

Selling your services based on time and not charging for the acceptance of liability are dangerous business practices that could cost you everything you’ve worked for — and land you in jail.

With an increase in diminished value (DV) claims and WreckCheck inspections, the chance of facing these problems increases every day. But charging dollars eliminates the aspect of fraud that can stem from a timed operation.

Consumers are very receptive to a dollar-based estimate. In the minds of most consumers, the current estimating systems, which use hours, have an appearance of impropriety because of their confusing nature and vague terminology. A consumer who feels he’s being ripped off may bring charges against you even though nothing illegal was done.

Another example of liability lies in test driving the vehicle after repairs. Very few shops charge for this service. Most insurance companies will refuse to pay for a post-repair test drive as it may turn up hidden damage; the more you find, the more they owe. And if an insurance company fails to address a critical item in the repair process that winds up hurting or killing someone, their defense is fairly simple: "We don’t fix cars. We just pay for the amount of the repair." However, if a shop overlooks a critical operation, the insurer can easily argue that the shop committed negligence in its failure to find and repair the damage.

Most shops test drive the car for wind noise, handling problems, etc., but by undertaking the test drive, the shop automatically acknowledges and admits that it feels responsible for determining the safety of the repaired vehicle. Putting a technician in a freshly repaired vehicle on public roads also creates potential liability.

The charge for test driving a vehicle should be based on the amount of liability you’re willing to accept for the safety of the repaired automobile, implied by your test driving the vehicle prior to delivery.

Let’s say you’re willing to accept liability. You may figure that liability to be worth a couple hundred dollars. If you offer this valuable service to the consumer for that price (in writing), it’s up to the consumer and his insurance company to authorize that procedure in order to safeguard the consumer.

Can you imagine the size of a settlement where a consumer was hurt or killed because the insurer refused to pay to have the vehicle test driven to find any hidden damage? What would an insurer be willing to pay to transfer that liability back to a repair shop by permitting the test drive? How does it make the insurer look when you request this and they say, "No. Let the consumer test drive it on the way home"?

With a written request from the shop and a subsequent refusal and non-payment on the part of the insurer, the shop has transferred that liability back to the insurer without the shop spending time and money test driving vehicles simply to accept more risk and liability. When an aircraft manufacturer builds a plane, it pays an expert test pilot to fly it. A re-built vehicle should also have a paid expert test it.

Insurers will pay for you to take on this liability as long as you can prove that without full payment for test driving services, they’re responsible for the entire liability.

Farmers Insurance Company was recently faced with a similar dilemma in Nevada. The car was a brand new vehicle that one of their direct-repair shops was unfamiliar with. So Farmers paid the shop to become familiar with it. Why? Because the car was going to a WreckCheck shop after the direct-repair facility was done with it. The final estimate included:
• Disassembly of new Volkswagen (VW) for proper re-assembly: $80.
• Time at "ABC" VW dealership to verify parts and fit: $80.
• Figuring out ducts for proper installation: $40.
• Going through Mitchell papers for assembly: $60.

The estimate included these items because the liability for not doing them had been clearly established by WreckCheck.

Based on what I’ve seen and heard, many shop owners have misplaced emotional reactions that cause them to feel it’s their responsibility to repair the vehicle perfectly because they’re the professionals. They feel that a less-than-perfect repair, even though it’s exactly what the insurer and consumer requested, will reflect negatively on the shop. This is true with most shops because of the improper wordage shop employees use when a consumer drops off his car. "We’ll take care of everything," and "We’ll deal directly with your insurance company," are just two of the many improper statements made by the average shop’s employees.

When has a shop ever been able to make an insurance company pay a proper amount for every procedure required to restore a vehicle to pre-loss condition? So why would you mislead the consumer into thinking that you can? This is setting yourself up for certain failure.

Once the insurer refuses to pay, shop owners then feel obligated to provide these unpaid or underpaid services because they promised the consumer they’d "take care of it."

But consumers are smart and don’t expect free work. As long as the shop properly manages consumer expectations, consumers won’t expect anything for free. (Remember, consumers don’t understand the value of your services unless you teach them.)

Criminal Liability
Cost shifting creates a tremendous amount of liability for the shop in the area of criminal prosecution. It’s a fallacy to believe that because your bill shows you didn’t charge for a part — but instead applied the payment to labor — that you’ll be protected from an accusation of fraud. In fact, that same bill can be used to prove you intended to commit fraud. It’s an indefensible position to say the repair of a particular part costs as much as the new part and labor to install it.

From a business standpoint, it makes no sense to exclude repairs that you were asked to do and paid to complete while doing additional work that no one asked you or paid you to do. Besides, in many cases, you’ll be doing more work for less money than if you had simply done exactly what was listed. There are people currently serving jail time for exercising this same practice. All procedures listed and accepted should be completed.

A shop should never do any procedure that’s not specifically listed on the estimate and appropriately paid for. This is the only defendable position to take. And no repairs should ever be implemented without express, documented permission from the vehicle owner.

The Cost of Doing Business
This article has touched on only a few of the liability-creating practices of repair shops; there are hundreds of others that a shop owner faces daily. Many of these accepted liabilities will also create a liability for DV. If it’s listed on the estimate and not returned to pre-loss condition, it’ll be repair-related DV. And while the insurer owns this loss under the policy, it will proceed to collect it from the offending shop.

A new awareness is taking place with the consuming public: They’re demanding accountability from their repair shops and their insurers. More lawsuits are being filed against insurance companies and body shops than ever before, and this trend will continue. There’s presently filed litigation that names the individual technicians as well! This is done to create distance between shop owners and technicians in order to collect evidence and damaging testimony.

Let’s face it. As insurers are challenged with their own growing liability, more often than not, they’ll turn to the collision repair industry as a scapegoat, and the collision industry makes itself a wide-open target by conducting poor business practices on a daily basis.

Keep in mind that liability is a commodity that can be bought and sold. Don’t accept underpayment or lack of payment for any procedure because, in doing so, you also accept the liability. Charge for the acceptance of liability, just as insurance companies do. Send an insurance estimate down to your underwriting department to determine if you’re willing to accept that risk. Ask yourself, "What would it be worth to me to accept the liability for guaranteeing a perfect frame repair or blend or panel repair?" Then explain to the insurer that your cost in dollars reflects the "procedural cost for producing that specific item, guaranteeing the work and accepting the liability."

Here a few helpful hints to keep you on track and out of trouble:
• Refuse in writing (Notice of Deficiency) to complete any and all procedures that are unpaid or underpaid on any estimate.
• Never cost shift, for any reason.
• Fully manage your consumer’s expectations by explaining liability, both the insurer’s and yours.
• Document all items required to restore the vehicle to pre-loss condition and any and all refusals.
• Tell the appraiser that the consumer is aware of WreckCheck and plans to take the vehicle to a WreckCheck facility for a post-repair inspection.

One last suggestion: If you fail to heed the above advice, find a good lawyer — you just might need one!

Writer Jim Lynas is president and owner of Wreck Checks, Inc.
Neither Wreck Checks nor any of its officers, principals or agents are licensed in any state to practice law, therefore, this article is not mean to provide you with legal advice.

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