lision claims, and each one of them has its own laws and regulations:

1. The repair contract.

2. The insurance contract.

3. The potential tort action.

For a shop, the primary concern is the contract of repair between the two legal parties – the shop and the vehicle owner. This contract is also subject to the repair laws of each state. As you well know, the repair contract often involves thousands of dollars. There’s a promised act of repair by the shop in exchange for a promise of payment from the vehicle owner. But only the vehicle owner has the right to enter into a legal contract of repair for that work.

In a repair contract, the consumer’s safety, health and financial well-being are at stake. And certain repair shop actions could negatively impact a consumer’s legal rights within the insurance policy or tort loss. These are serious legal issues that shouldn’t be taken lightly. Within the contract of repair between the shop and the vehicle owner, both parties to the repair contract have a right to negotiate that contract on their own behalf. It’s when another entity tries to interfere with this process that the issue of UPL begins. Insurance companies can and do interfere with the contract of repair by negotiating the repair contract directly with collision shops. The shop, however, must agree to the interference and allow this negotiation to take place – otherwise, it couldn’t happen. Both the shop and the insurance company are stepping into the legal shoes of the vehicle owner without the authority to do so – and are committing a form of UPL. The shop is interfering in the contract of insurance and/or the tort claim, and the insurance company is interfering with the repair contract. In order to represent the vehicle owner in the insurance contract negotiations, the shop owner would have to literally be the vehicle owner’s lawyer. And a shop owner doesn’t have the legal right to do this unless he’s a licensed attorney. A “power of attorney” or “assignment of rights” doesn’t make you a lawyer or protect you from an accusation of UPL. In fact, it’s my opinion that the “power of attorney” just proves the UPL. A repair shop owner doesn’t have the legal training to undertake insurance contract, liability or coverage issues on behalf of the insured. This type of improper representation is exactly what UPL statutes are designed to prevent.

In a tort action, this principle is even more egregious because the shop is technically and legally attempting to represent the vehicle owner in the settlement of a legal tort action. By law, this is a field of practice that only lawyers can enter. The third-party insurer of the at-fault driver has no legal rights at any repair shop. If either the shop or the third-party insurer contacts each other and attempts to negotiate anything, it would be UPL.

If you consider that each tort action with a third-party insurance company is most likely going to be a first-party claim as well, you start to understand the complexity of the legal issues at hand. Collision shops shouldn’t practice law by negotiating directly with any insurance company.

Is the Insurance Adjuster a Lawyer? These same principles of UPL exist from the insurance appraiser/adjuster side of the fence, too. The insurer has no legal right to legally represent any policyholder directly. The policy of insurance is not a “buyer protection plan” that encourages or allows the insurer to ride along and police the purchases made by the insured or claimant with his insurance check after a loss. And this includes the purchase of a legal contract of repair. When an insurance appraiser goes to a shop and opens up a dialogue about what should or shouldn’t be done to a consumer’s automobile, he’s negotiating the contract of repair on behalf of the vehicle owner. Just like the shop, the insurer has no legal standing to represent the consumer in this legal capacity. Any insurance-company attempt to obtain an “agreed price” with a shop would be a negotiation of the consumer’s contract of repair.

The insurance appraiser isn’t the consumer’s attorney, and the policy doesn’t provide for any legal mechanism to make him one. As a corporation, the insurance company is also barred from practicing law.3. Even if the insurer wanted to claim they had a right to negotiate the legal contract of repair, they’d still have to hire a “real lawyer” to do it. The appraiser isn’t a licensed attorney and cannot legally represent the policyholder. And even if he was, there’d be too much of a conflict to do so. The conflict arises out of the adverse position: The consumer would desire to get the best repairs money could buy, and the insurer would desire the cheapest repairs they could get by with. An insurance appraiser’s improper negotiation of the repair contract is also evidenced by the specification of imitation parts, discounts, labor concessions, skipped procedures and any other deduction from the full cost of repairing the vehicle. Only the consumer has the right to say what repairs or parts will be used on his car.4. The insurance company appraiser doesn’t have the legal training to know all of the laws relating to repair contracts or the potential ramifications of the policy relating to the consumer’s rights. Most insurance-negotiated repairs are a poor excuse for a legitimate repair contract. As an example, I have yet to see one single consumer’s repair contract entered into by an insurer that specifically outlines the level of quality or the condition the automobile will be returned to after the “repair.” But if I hired a lawyer to negotiate a repair contract, the terms of the “repair” and the obligation of the repair shop would be made very clear. In a tort situation, consumers have a right to “total” their own car by selling the damaged car “as-is” and collecting the before-and-after value. But this cannot be done after the repair has been started. The first-party insurer’s actions could damage the consumer’s right to the before-and-after value measurement of loss by initiating a repair without disclosing these important tort rights. This is just one reason why these issues require proper legal training.

The consumer also could have a right to a Multiple Source Recovery (MSR) from both insurance companies. The consumer can collect from both insurers until he collects 100 percent of the loss. But when the third-party insurer gives the consumer’s check directly to the shop, this can damage the consumer’s legal rights to collect from both insurers to be made whole.5. DRPs: Crossing the UPL Line? In a contract, the parties to the contract have the legal right to any benefit from that contract. If there are any discounts to be had, like a labor discount or parts discount, those discounts are part of the “benefit of bargain” and belong to the vehicle owner, not the insurer. When an insurer attempts to obtain the consumer’s discounts through a backdoor negotiation process within a direct-repair agreement, then the insurer’s UPL actions become potentially fraudulent. When you couple the UPL with the potential fraud aspect, it’s pretty clear these activities shouldn’t be taking place.

A DRP shop owner enters into a separate contract with an insurance company to give the consumer’s discounts to the insurer instead of the vehicle owner. The DRP shop owner also agrees to implement certain restrictions on the repair process that benefit the insurer to the detriment of the consumer. The DRP contracts that currently exist between a shop and insurer that modify, change or control any aspect of the consumer’s repair contract may be illegal and certainly do cross the UPL line.

The DRP relationship also converts some of the consumer’s repair dollars into appraisal labor by making the shop do the insurer’s claims work. The insurance company sends the DRP shop an assignment just like they were an appraisal firm. The DRP shop then handles all of the insurance company paperwork, photos and claims management, but the insurer doesn’t pay them directly for this labor. The payment to cover this labor is removed from the consumer’s repair payment by the shop. In this scenario, the DRP shop is acting as an unlicensed appraiser, insurance representative and legal representative for the insurer and the consumer. The DRP shop is also acting in a dual-agency relationship without disclosing this to the consumer. When this is all done without the consumer’s consent, authority or knowledge, it’s clearly UPL and potentially conversion of asset and fraud. There’s also the issue of privacy. Privacy is protected in the legal profession by the attorney-client privilege. The consumer’s right to strict privacy is also protected in the insurance contract through the Graham Leach Bliley Act (GLB). When an insurance appraiser commits UPL and enters into the negotiation process directly with the shop, he’s also violating the consumer’s legal right to privacy. Any insurance estimate contains several items of personal information about the insured that are protected by the GLB. But when this estimate is handed to a collision shop, the consumer’s legally protected right to privacy has been violated. These prohibited personal information exchanges are even more invasive in the DRP relationship. As soon as the UPL line is crossed, that’s when the illegal personal information disclosure simultaneously starts taking place.

Are You Guilty?
In the preceding examples, it can be argued that the right of the consumer to contract for a correct and proper repair was forever damaged and that any poor repairs were a direct result of the UPL. Many of the consumer’s legal rights are trampled by the insurance industry’s profit motivations, and these abuses are exactly what the UPL statutes are designed to prevent when a person’s legal rights are at stake. From both the insurer’s and shop’s standpoint, these activities appear to blatantly cross the line of UPL. Are you guilty of UPL? There are five basic tests that can be applied to any activity or course of business that can help determine if that activity constitutes UPL.

1. The “Commonly Understood” Test defines the practice of law as being comprised of activities that lawyers have traditionally performed. Within the repair of an automobile, there’s the creation of a repair contract between the vehicle owner and the shop. If a shop negotiates directly with any insurance company on property damage to a car, this could be considered representing the vehicle owner in the settlement of the property aspects of the vehicle owner’s tort action or insurance contract. These are all “commonly understood” activities of a lawyer and UPL.
2. The “Client Reliance” Test asks whether a client believes that he’s receiving legal services. A client knows that he has a contract of insurance, which is a legal instrument. Negotiating the settlement of that client’s claim and accepting money directly for that claim is clearly a legal service. Negotiating the torts claim with the third-party insurer would also clearly be a legal service. Since the third-party insurer has no legal rights with the vehicle, the car owner or the shop, the only other reason to discuss anything with them would be a tort settlement. And shops don’t have the legal training to handle tort negotiations on behalf of a client.
3. The “Application of Law to the Facts” Test identifies the practice of law as relating the general body of legal knowledge to the facts of a particular case or to the specific legal problems of a client. When a shop owner negotiates directly with either the first or third party, he’s representing the vehicle owner’s legal interests. And a shop owner can inadvertently damage a consumer’s legal rights by many actions that he may take. If a shop owner thinks he knows the law and applies even the correct application of that law to the insurance claim or tort settlement, this still could be construed as UPL. When shop owners who don’t know the law apply their own brand of logic to the consumer’s claim, the liability may be coupled with a negligence action.
4. The “Affecting Legal Rights” Test is when a person engages in the practice of law if he provides services that affect another’s legal rights. The entire process of collision repair claims dramatically affects the consumer’s legal rights. The negotiation by the shop or insurer on any of the issues relating to the consumer’s contract of repair, insurance contract or tort claim would obviously qualify.
5. The “Attorney-Client Relationship” Test focuses on the existence of an attorney-client relationship. Using a “power of attorney” or an “assignment of rights” would show the shop’s “application of the law to the facts” and also “client reliance,” proving the shop was violating UPL statutes. If you recognize activities that you conduct on behalf of the vehicle owner or insurance company that breach one or more of these five tests, then you may be guilty of UPL. And if you allow any insurer to practice UPL by permitting them to conduct these potentially illegal activities and negotiations with you, then you can be held responsible. The UPL codes in most states include penalties ranging from a reprimand to stiff fines and actual jail time. However, UPL also opens the door to a negligence action and punitive damages for both the individual and the corporation guilty of UPL.

What Now?
This article is general in nature because the determination of what constitutes impermissible legal advice or UPL must, in most instances, be made on a case-by-case basis. Although this article is meant to be instructive, the determination of what constitutes UPL is made by a state’s Committee on the Unauthorized Practice of Law, the Attorney General’s office and, ultimately, the courts. Shop owners who are unsure of whether an anticipated course of conduct may be considered an unethical practice or the Unauthorized Practice of Law should proceed with caution and seek legal advice from an attorney – but not from another body shop owner or an insurance appraiser.

Writer James Lynas is the founder of Wreck Check and SafeCheck vehicle inspection systems. More information on these concepts can be obtained at www.wreckcheck.net.

Note: The foregoing is intended as an informational article only and should not be construed as legal advice.