For Mike Harber, the worst thing that has come out of suing insurance companies is having to let go a lot of people whose commitment and hard work he valued.
In 1987, his collision repair facility, Stroud’s Auto Rebuild of Tacoma, Wash., had $3 million in gross sales and more than 40 employees. Today, it does a little over $500,000 and has five employees. The loss in business was from a combination of deciding to not pursue DRPs anymore and to pursue legal action against insurers when he felt it was the right thing to do.
“I got sick of it,” says Harber. “[The insurers] baited us to start cutting corners to make a profit because they were squeezing more and more out of what we were able to legitimately make. If you had to do all repairs right by the book, I was losing my butt. So then we started looking for ways to tighten our belt through economies of scale or efficiency or throughput, and then our techs started realizing that for them to keep their jobs and take a check home, they would have to figure out how to cut corners and get jobs done faster. It got to be a tangled web. We would send in supplements and then they would pay. Or we would write off stuff all the time instead of getting into the hassle of a lawsuit and say, oh well, we’ll make it up in volume.”
Since his change in business philosophy, Harber has won several battles but says he is losing the war. Still, he has no regrets.
“When you win, you feel good and feel that justice was done,” he says.
But not every conflict warrants a lawsuit, Harber cautions.
“Anybody can sue anybody, but having a suit that’s worth your time and effort where you have a good case and a chance to win, that’s something else,” Harber says. “The system is difficult and time-consuming. It’s not like you’re going to sue and be done with it. It’s a long, drawn-out affair with appeals and so forth.”
Repercussions
Harber says that deciding to sue an insurance company is not necessarily the kiss of death for a body shop. But he says you better be prepared for repercussions – because there will definitely be some.
“You have to be prepared to market yourself effectively, and that’s expensive,” he says. “How well can you offset those repercussions with your marketing ability? Because once you start poking the tiger in the cage, they will do what they can to lash out.”
Harber cited as an example his successful victory over one insurer six months ago. After the case was over, he claims he didn’t see another adjuster from that insurer in his shop for six months.
The case involved steering. Harber had a brand-new vehicle in his shop, got the customer to sign a repair order and started the repairs. There was a “huge” difference between his estimate and the insurer’s estimate, and according to Harber, the insurer “badgered” the customer enough that he ended up throwing up his hands and taking it to a shop chosen by the insurer. Harber recovered storage fees and was paid for the work that he had already done, but he sued for lost profit.
“I had a job and they interfered with my business, and I won,” says Harber.
Mike Parker, owner of Parker’s Classic Auto Works in Rutland, Vt., a $2 million shop with 16 employees, agrees with Harber that there will be a penalty to pay for challenging insurance companies. He has only taken one insurer to court, where he won in a jury trial that lasted a day and a half. But he currently has another suit filed and four more “on deck.” Most of his conflicts, however, have been settled before ever making it to court after the insurer received a simple letter from his attorney.
“The minute you stop negotiating and giving agreed figures or start charging a penny more, the steering starts. You have to totally play ball,” Parker says. “So when you sue an insurer, can they steer any more? Not really. There will be no more repercussions for going to court than not going to court if you currently aren’t doing things exactly how they want them done.”
Parker said the steering he has experienced comes in spurts. He won’t see any representative from XYZ insurance company for a couple weeks, then suddenly he will see a bunch. In some cases, his shop outdoes the DRP shops.
“We’ve had some adjusters say we’re doing more repairs than their DRP shops,” he says. “We do a good job of educating consumers of their rights, and the radio ads we run help us do that.”
Marketing
When Harber first went down the road of threatening insurers with lawsuits when individual incidents warranted the action, he took a page from an Ohio shop owner’s playbook and started a radio advertising blitz to protect himself from the repercussions he was confident he would face. Unfortunately, he didn’t do his market research first, and the campaign failed.
“We’re in a unique market here in Puget Sound,” says Harber. “I’m bordered on the west by saltwater and the east by a mountain range, so I have a very narrow strip of consumers in a north-south fashion. I didn’t get the reach for the amount of money I was spending. But we did come up with some really effective ads that other repairers across the country ended up asking if they could use.”
Harber’s next move, however, turned out to be much more effective: hosting a live call-in radio show that educates consumers on the collision claims process. Harber’s “Crash Talk” airs every Saturday from 8 to 10 a.m. PST on Seattle’s KPTK 1090 AM. The idea, Harber said, is to get to consumers before insurers do.
“You also need to do print and media advertising and promotion, including community service activities,” he says. “Also, you need to get hooked in with dealers. And of course, now the big push is to get your key techs certified by the different auto manufacturers. That’s the direction it’s going because cars are getting so sophisticated.”
Parker runs radio ads as well, and what helps is that they’re fairly inexpensive in his market. He also includes consumer education information on his website and has written several articles in the local newspaper schooling consumers on the claims process.
“When I educate consumers, I try to give them the short version, which some are happy with,” he says. “Others really want to get into it. But most of them will take the information I give them and go out and tell others.”
Documentation
Harber said that perhaps the biggest key to preparing a lawsuit is documentation. You can’t just say an insurer hurt your business, steered customers away or underpaid a claim – you have to prove it.
“When it gets down to it, and you’re trying to have the facts go before a judge or jury, you can’t be prepared enough,” he says. “What are the facts, and how do you back it up and prove it? Attorneys I’ve worked with have been brutal with me, asking, ‘Who said it? When? Where is it documented?’ You have to have your act together once you go into that arena because there will be backlash.”
Harber says he tries to get everything in writing and time stamps everything. He also keeps a computer log as a claim progresses. In the previously mentioned steering case that was resolved six months ago, he ended up getting a written statement from the customer, but in hindsight he says it would have been easier to get before the vehicle left his shop.
“Before the vehicle left, we should have asked exactly why he was taking it out of our shop, under what conditions, the pressure that was put on him and specifically what was said. Because, by itself, there’s nothing wrong with an insurer saying we’re more expensive than someone else.”
Harber also sends a final audited invoice to the insurer so they have the opportunity to pay or deny the claim. He says that this documents that you went out of your way as a repair expert to explain the damage and what it will take to restore the vehicle to pre-loss condition.
“I’ve seen it come up a couple times where the insurer will say they never had a chance to know what the final bill was, or they never had a chance to reinspect the vehicle,” Harber says.
Parker has also learned a thing or two about documentation and gathering the paperwork necessary to prepare for a suit. When he started doing this, he and his wife did a lot of backtracking to find invoices. They typically had to go back, pull out folders and make copies of the final invoices. In one case, they had to do that for three years’ worth of invoices, which amounted to 31 folders. Now, they stay on top of things.
“Now, on every job, we print two of everything,” says Parker. “We still haven’t decided if we’re going to accumulate six months’ worth of invoices at a time or go on each individual one for individual cases.”
Customer Involvement
Parker typically gets his customers to sign an assignment of proceeds form. A shop that uses the assignment of proceeds at the close of a repair allows the consumer to take his or her vehicle without having to pay the full amount owed on the repairer’s invoice, in exchange for receiving his or her right to receive payment from the insurer or some other person or entity.
Since 2007, Parker says he has had no more than six people who hesitated to sign the assignment of proceeds form.
“I tell them that I’m taking the same step they would have to take if they paid me in full then went after the insurer to get paid,” says Parker. “If they still refuse, I tell them there is nothing we can do for you then and have a good day.”
Besides seeking legal advice before even attempting to go down the assignment of proceeds road, Parker says a shop should also talk to its accountant. Why?
“Because all this money you don’t collect stays on the books as profits. If you’re set up that way, you’ll have to pay taxes on that uncollected money,” he says. “Also, you better be squeaky clean on how you perform repairs, how you invoice, etc., because that may come under a magnifying glass.”
But before going the assignment of proceeds route, Parker advocates that shops try to get the customer to pay the difference.
“If you can educate the consumer on what they’re going to be getting for the repair and that the insurer likely will not pay the entire cost of this repair, and they say they will pay the difference, let them do that and then go after the insurer for it,” says Parker.
Parker said one of his customers recently did just that. The customer paid Parker for the full amount of the repair, which was $1,500 short of what the insurer paid. The customer then pursued a bad faith lawsuit against the insurer, who ended up settling the loss for $8,500.
Like Parker, Shey Knight, partner/owner of Autosport Inc. in Opelika, Ala., advocates looking at getting customers involved before going the lawsuit option – and says he has not lost many customers through this approach either. He typically gets them to pursue the insurer themselves instead of doing it for them through assignment of proceeds.
“We’ve had very few customers complain about the process of collecting the amount they’re owed from the insurance company,” says Knight. “Maybe 2 or 3 percent of them would not choose to have their vehicle repaired at our shop again because we didn’t handle the claim on their behalf or because they had to pay the repair in full at delivery.”
Knight said that most customers tell him that they appreciate his honesty, the quality repairs and fast turnaround. They express shock over how difficult it is to settle a claim. And he says 90 percent of them get paid in full by calling or e-mailing the insurance company – with little or no delay.
Only 5 percent, he says, threaten the insurance company with a lawsuit and ultimately get paid in full without ever having to take legal action. The remaining 2 to 3 percent pay the difference out of pocket “without question.”
“They simply pay the bill and do not seek reimbursement and accept this as normal practice,” says Knight.
Knight says only one customer’s case against an insurer (out of thousands) went to court over a $600 unpaid balance.
As Knight sees it, the rewards of involving customers are:
• No waiting on the shop’s earned money
• No court dates
• Higher net profit numbers
• No volume lost
• Insurance pie becomes much more divided and thus makes shop less vulnerable
• No long accounts receivables reports
• No negotiation, no arguments
• Higher door rate
• No waiting for insurance authorizations
• No supplement delays in that the process has become accepted by many insurers; they simply pay the claim
• Improved cycle time
• Easy scheduling
• Increased sales (customer referrals from that 90 percent group)
But there are drawbacks, says Knight:
• Losing 2 to 3 percent of possible repeat business
• More time preparing customers
• Some insurance companies will steer harder
Choosing a Lawyer
In Parker’s mind, finding the right lawyer and educating them on the collision industry is key to a body shop’s litigation efforts. He turned to his family lawyer, who initially was lukewarm to the idea. Once Parker explained the ins and outs of the insurance claims process, the lawyer was on board.
“I first talked to our attorney in 2007, and only in 2010 was I finally comfortable with him moving forward,” said Parker. “I met with him every day, and there were some sessions that reached three hours. He took notes, absorbed things and then went back and checked the laws.”
What about those who say if shops that sue insurers would just concentrate on improving their businesses instead of wasting their time with lawsuits, they would be much better off? Parker says he vehemently disagrees.
“I think you would want to talk to some post-repair inspectors about that,” he says. “From what I see around here, these shops that say they’re focusing on improving their businesses are doing shoddy work. I just wrote re-repairs for $11,500, $8,500 and $3,300. How are we focusing on making our businesses better by not giving the consumers the repairs they’re supposed to be getting?”
Making a Difference?
Even though Harber has had a few triumphs, he admits that he still has his doubts about whether he’s gaining any footing. Even when the insurers lose, he said, it doesn’t make any difference to them at the end of the day.
“It’s just another day in the office to them,” he says. “But for the small business owner, it’s tough. You worry about these things. It’s on your mind all the time. You’re probably better off staying away from lawsuits unless you have a really good case and it’s documented well and you’re prepared for the repercussions.”
Liz Hilton, co-owner of Hilton’s Collision in Ash Flat, Ark., says she has never had to sue an insurer but would if she had to.
“I would stand my ground in court, but I have yet to have an insurer not pay,” she said. “I stood out here last month and watched an insurance company tell us ‘No’ to a rear body panel replacement. We told them ‘Yes’ and we’re ordering it. They called the next day and said it was approved. There’s no ‘kiss of death’ there; they just need to know that we will not take any of their advice on how to repair these wrecks. We have our own standards. We know how."
