After listening to me for hours during socials and dinner meetings over the past several years, an attorney friend pronounced in all capital letters, “The only thing wrong with the collision repair industry as you describe it is you just haven’t had enough lawsuits yet!” Spoken like the attorney he is, he went on to explain that many more “mature” industries had already gone through a long series of individual and class-action lawsuits that challenged their traditional business practices. As a result, the various parties involved now know their boundaries and seem to stay within them more often than not. His assertion was that the collision industry just hasn’t experienced all of these yet and therefore all of the players are still trying to get away with all they can. Further, the traditional business practices everyone claims are “just the way it’s done” haven’t been challenged yet, so no one’s been forced to adopt new and less questionable practices.
With that in mind, I started to look around to see if his assertion had merit. I reflected on the one lawsuit that made all body shops paranoid: the action by Bruce Plotkin, assistant attorney general of the state of Washington, against a collection of body shops and their association director in the early 1980s. Since then, nearly every gathering of body shops has started with an antitrust disclaimer. Based upon that single incident, perhaps my attorney friend was right. It certainly was compelling enough for me to look further.
Suits of the Past
In January 2001, legal action started against the major paint companies supplying paint to the collision repair industry. The defendants in this case were the following five major U.S. paint manufacturers: PPG Industries, Sherwin Williams, DuPont, BASF and Akzo Nobel. The five entities allegedly conspired to fix, raise, maintain or stabilize automotive refinishing paint prices in the United States from 1993 through 2000.
In 2003, Akzo Nobel settled out of court with the plaintiff class for $18.75 million. In 2004, DuPont and BASF settled for a combined total of $48 million. PPG and Sherwin Williams recently settled with plaintiffs for a combined total of $39 million and were scheduled to attend a fairness hearing in August 2007.
In 1998, State Farm found itself embroiled in legal action over the required use of aftermarket parts. The lawsuit became known as the Avery Case. Initially, a Williamson County, Ill., judge awarded a total of $1.18 billion in damages: $456 million for breach of contract, $600 million for punitive damages under the consumer fraud law and $130 million for disgorgement damages – representing direct savings realized by State Farm from the use of non-OEM parts.
After years of litigation and maneuvering behind the scenes, the Illinois Supreme Court threw out the $1 billion class action judgment against State Farm over a technicality. The court said that the national class was improperly certified in 48 states. It threw out all of the monetary damages awarded by lower courts and ruled that the use of aftermarket auto parts did not breach the insurance company’s contract with its policyholders.
Regardless, State Farm hasn’t resumed its former practices, but other insurers continue in similar
practices. The conclusion appears to be that the suit
perhaps had some lasting effect, but only in an
isolated situation.
Regardless of past lawsuits, perhaps class-action lawsuits in the future can and will have lasting impact. But what areas remain untested and unchallenged? What business practices are likely or potentially subject to individual and class action?
On the Radar
The first areas that flash on the radar are those that are most obvious to anyone outside of the industry itself. The sacred cow that generates the biggest headlines and the most sympathy always surrounds the consumer. Here we can see several items that could become the basis of legal action ranging from state and federal attorney general action to groups of body shops or even insurers suing.
Consumer fraud for lowballing estimates. According to consumer advocate attorneys, if the practices by insurers or repairers were considered pervasive and systemic, they could easily be seen as unfair trade practices or consumer fraud. This could result in both legal action taken against a company or companies and/or a class-action lawsuit brought on by a law firm that represented hundreds or thousands of consumers who received artificially low estimates that were knowingly below value and thus defrauded them. This would have to be proven in both terms of its existence and that it was a conduct that was deliberate, widespread and ongoing.
Steering. In many states, there are existing laws that strictly prohibit steering by insurers. However, steering is difficult to prove and enforce as the laws are written and interpreted. This is especially true considering the tactics and careful word track insurers use to influence the consumer’s choice. However, it has been suggested that using the Racketeer Influenced and Corrupt Organizations Act, a prosecutor wouldn’t necessarily have to prove the incidence of the law being broken, just prove that it had to be broken. In other words, steering had to have existed or insurers could not have offered volume in exchange for concessions. Various third-party organizations could not have negotiated and benefited from insurer referrals if steering had not existed.
Even if an attorney general or other governmental entity didn’t elect to pursue the practice with a lawsuit, shops could instigate
a class-action suit on their own behalf as the injured party or
on behalf of consumers as the
injured party.
Insurance fraud. On a fairly regular basis, insurers, through NICB and directly, sue a shop that conducts business outside the law. These suits grab big headlines and are the favorites of the nightly news. The estimated cost to consumers and insurers for illegal business practices by unscrupulous body shops is staggering. Most of the chop shops go unprosecuted and throw an ugly shadow over the entire industry.
The California BAR has grabbed similar headlines taking down a shop or consolidator according to its interpretation of the law. Unfortunately, many shops violating the BAR laws remain in business year after year, but any body shop following the normal business practices and pricing habits between insurers and repairs could be shut down. It’s all in the interpretation and enforcement.
As more and more insurers follow tactics such as the concierge program by Progressive, the laws will undoubtedly test if the insurers are crossing several lines in steering customers, deceiving customers, conducting repairs without a license, etc. Several of these are being challenged currently by a class action suit brought by a group of shops in California and the former head of the BAR. Ironically, they’ve named the BAR in their suit for not enforcing the law.
Consumer fraud for misleading and erroneous estimates. This is an area that has just recently been considered. If an estimate is confusing in its language or misleading to the consumer about the costs and repairs, it could be considered consumer fraud – intentional or not. This practice could be prosecuted or grounds for a class-action suit. Consider how often an estimate is really the mechanism to negotiate price and not really a blueprint for how the vehicle will be repaired. Also, consider the confusion created by the terminology, misleading the actual repair practices and setting of price/cost. Regardless of the fact that the estimating system may be the foundation for the way the estimate reads and sets the table for consumer confusion and cost shifting, it is not a defense.
Another point to consider is that it’s illegal for insurers and repairers to negotiate on the repair practices and repair procedures. Why? Because they’re setting the price without the consumer agreeing to those repair practices. Since this goes on every day, there could be plenty of grounds for both prosecution and class-action suits. Shops should keep in mind that they’re not innocent because they participate under an agreement with insurers through a direct repair program. Nor are shops exempt because an insurer told them to do it – implied with the refusal to pay or not. Some have suggested that the estimating practices are perfect evidence of at least several legal violations and consumer fraud!
According to consumer advocate attorney Erica Eversman in her blog called the “AutoMuse,” “the third circuit ruled that allowing a policyholder to pursue a claim against his insurer brought under the federal Racketeer Influenced and Corrupt Organization Act does not run afoul of the McCarran-Ferguson Act. Weiss v. First Unum Life Insurance Co. No. 05-5428 (3rd Cir. 2007).
“Apparently, [New Jersey] state insurance laws do not provide, nor do they prohibit, a private right of action for a policyholder to bring a claim against the insurer. As a result, the Third Circuit interpreted the federal RICO act as ‘complementary of the state’s laws.’ This could open the door or even floodgates for potential legal action from policyholders as well as repairers, individually or as a class action.
There are far more business practices within the collision industry that could come under fire and have their legitimacy tested. Time will tell, and everybody’s fair game. Between now and then, it might be advisable for repairers, insurers, paint companies and aftermarket parts organizations to be preemptive or at least proactive and clean up the house before the inspector gets here.
Writer Scott Biggs is currently the CEO and founder of Assured Performance Network, a shop-owned co-op founded in 2004 representing approximately 5,000 independently owned collision repair businesses in the United States. Biggs is the former producer and host of BodyShop Video Magazine and president of Business Development Group. He has received many awards and recognitions including Industry Achievement, Hall of Eagles, Most Influential Leader of the 20th Century and more. He has toured thousands of shops and delivered more than 850,000 hours of management education to the collision industry. His organizations have provided marketing, technology, management services and consulting to thousands of body shops worldwide since 1984.
