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“Why don’t insurance companies offer two different policies? If they had an OEM parts policy and an A/M parts policy, consumers could choose which one they wanted and when they wrecked, they couldn’t say anything about using A/M parts since they chose that policy. Wouldn’t this solve a lot of problems for collision repairers?”
– Joey “Mack” Prosser, owner, Mack’s Body Shop, Lake City, S.C.

At first glance, it would seem that such a two-tired policy might resolve some or all of the issues of aftermarket parts that have plagued the collision repair industry for so long. But as you look closer at the issues surrounding such a policy, it becomes apparent that more questions are raised than answered.

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On Dec. 8, 2000, the Massachusetts Division of Insurance issued Bulletin 2000-15 Revised (www.state.ma.us/doi/bulletins/bulletins_00_15.html). It reads in part: “All insurers licensed to sell private automobile insurance shall have the option of selling an optional endorsement that provides for the use of new parts manufactured by or under licensure of the original equipment manufacturer when replacing crash parts under Coverage 7, 8 and/or 9 of the Massachusetts Personal Automobile Policy when such new parts are not otherwise required.”

Parts 7, 8 and/or 9 of the Massachusetts Personal Automobile Policy refer to collision, limited collision and comprehensive coverage.

I was offered this optional endorsement for my vehicle when it came time for me to renew my policy.

I’ve been in the collision repair business for 25 years. First as a tech who had to install A/M parts. Then, briefly, as an insurance appraiser following company direction in specifying A/M parts. Next, as a shop manager, who had to deal with clients whose vehicles were being repaired with A/M parts. And, currently, as a post-repair inspector.

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Because of my industry experience and personal experience with A/M parts, I had several questions for my insurer about this new OEM optional endorsement that I was being offered. So I drafted a letter to my insurer, trying to get a clearer picture of what they were trying to sell me and the insurance-buying public:

To Whom It May Concern:
I’ve received my new auto policy for the current year. I noticed that you’re offering an optional endorsement for OE parts should my vehicle need repairs under a covered loss. As a consumer of insurance in the state of Massachusetts and to make an informed decision about whether to choose this optional endorsement, I would like Amica to clarify its current policy and how the optional endorsement might change that. Specifically I would like to know:

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  • How much more does the optional endorsement for OE parts cost? The Division of Insurance has determined that there may be safety issues with some aftermarket parts. Does Amica recommend that I increase my liability and medical coverage to cover this increased liability associated with the use of aftermarket parts?
  • Does the OE parts policy cover new OE parts? If I do purchase the lower-priced policy and my car is in an accident, does that mean we’ll enter into a contract of repairs on the insurance specification of parts and suppliers?
  • If I do purchase the A/M parts policy, will I have to pay any additional money for OE parts if A/M parts aren’t available?
  • If I do purchase the lower-priced policy, my car is in an accident and imitation parts are installed that – upon my inspection – are determined to be defective or not Like, Kind & Quality (LKQ) in accordance with Massachusetts law, does that mean I’ll be owed diminished value (DV) by Amica?
  • Who’s legally responsible for determining if imitation parts specified on the insurance estimate are in fact LKQ in accordance with Massachusetts law?
  • If I do purchase the lower priced policy, my car is in an accident, and imitation parts are installed that – upon my inspection – are determined to be defective:

– What would be all of my legal remedies and recourses from Amica?

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– Will this policy pay all cost associated with the re-repair process including rental payments?

– Is it the insurance policy that will guarantee that these imitation parts will be LKQ? – Wouldn’t that mean that the insurance company violated the law by insisting on a part that wasn’t LKQ?

  • Will I be responsible for any additional surcharges if my claim goes over the $2,000 limit due to re-repairs that may be required if the parts prove to be defective? (Note to BSB readers: Massachusetts policy allows insurance companies to access addition surcharges to the at-fault driver, known as the Safe Driver Insurance Program. This surcharge is based on the total dollars paid on the claim. Payments by the insured of $500 to $2,000 result in a three-point surcharge, and payments more than $2,000 result in four-point surcharge.)
  • Since the Auto Damage Appraisers Licensing Board (ADALB) has determined that imitation parts are not LKQ, then what specific parts will be put on my car with the lower-priced policy? (Note to BSB readers: The ADALB held an informational hearing on March 21 and March 28, 2000, at the request of Linda Ruthardt, Commissioner of Insurance regarding the safety and availability of aftermarket parts.)
  • Since the policy issued is an actual cash value policy (ACV), is there an automatic payment of DV due in order to achieve the ACV standard?

Thank you for your time and effort in answering my questions. As a long-time policyholder with Amica, including other vehicles and my home, I look forward to your written response. At that point, I will make my decision on the optional OE parts endorsement that you’re offering.
Sincerely,
A Consumer of Auto Insurance

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Needless to say, my letter fell on deaf ears. I never received a response from the insurer. Nothing.

In a continuing effort to get answers to these seemingly simple questions, I followed up with an e-mail to my congressman. Congressman Michael Coppola, Massachusetts House of Representatives, then sent a letter to the Division of Insurance Commissioner Linda Ruthardt, asking for more detailed information on the subject of A/M parts and the optional OE parts policy.

In her response to Congressman Coppola, Commissioner Ruthardt managed to put full spin on the issues. She wrote in her response that the ADALB report “did not conclude that aftermarket parts are inherently or universally inferior or sub-standard.”

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Wrong. That statement is in direct conflict with the ADABL report that, among other things, concluded: “It is, we believe, very safe to assert in writing that the quality and fit of aftermarket cosmetic crash parts are not the equal of an original. … With respect to the safety issue involved in the use of cosmetic aftermarket crash parts, the Board voted 3-2 that the aftermarket cosmetic crash parts are not the exact duplicates of the factory original parts and may jeopardize the safety and value of the vehicle.”

The ADALB finalized its report on Oct 18, 2000, 44 days before Commissioner Ruthardt issued Bulletin 2000-15, allowing insurance companies the OE policy endorsement.

Not one to give up easily (and to obtain some information from the Division of Insurance for this story), I contacted Victor Fanikos, head counsel for the Massachusetts Division of Insurance, for some comments. I asked Fanikos how the DOI reconciles the optional OE parts policy with the recent ADALB report on aftermarket parts.

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“Many people just drive their cars. The fact is that 90 percent don’t care about their cars,” says Fanikos. “If they can save some money, they’ll accept a repair that’s not perfect.

“I know this is a weak argument, but if you have a car with 60 or 70 thousand miles on it, the aftermarket part may be better. It’s new, whereas the fender coming off the vehicle is several years old and has been exposed to winter road salt and sand. The policy does not require the insurance company to make the car new.”

So what would happen if a vehicle is repaired under an A/M policy and those parts don’t fit? Would the insured be entitled to a re-repair?

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“If the vehicle isn’t repaired to normal trade quality, they would have the right to have it fixed,” he says. “But it shouldn’t get that far. If there’s a problem with the fit, the insurance company shop and vendor should work together. But quality of the parts isn’t the only reason they don’t fit. In a large percentage of the cases, it’s the frame that wasn’t fixed properly.”

So who’s responsible for determining the LKQ status of these parts?

“Nobody is,” says Fanikos.

Dennis Howard of The Insurance Consumer Advocate Network (www.ican2000.com), an Internet-based consumer advocacy effort, had this to say about the OE optional endorsement:

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The Insurance Consumer Advocate Network wouldn’t challenge a two-tier auto policy market only if it were beneficial (and fully disclosed) to consumers. However, the auto insurance industry’s current approach is to charge more for these “new” consumer option policies. Says Howard: “That’s completely inappropriate and unjustified.”

Current auto policy verbiage already affords consumers the same protection that’s now being marketed as “new” in the “OEM Only” auto policies. That protection is embedded within the current auto policy’s LKQ clause.

Previously, auto insurance companies have pointed to the LKQ clause to justify their use of A/M body parts, claiming that such parts are of like, kind and quality. However, recent civil cases have determined that A/M body parts aren’t like, kind and quality. In fact, the “discovery” process of these civil cases has uncovered volumes of insurance company internal documents showing that defendant insurance companies have known for years that A/M body parts are “Not Like, Kind & Quality.”

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Probably the most notable of these recent cases was Snyder v State Farm. That case resulted in a combined civil/criminal penalty in excess of $1.1 billion being levied against State Farm. In fact, says Howard, the above quote of “Not Like, Kind & Quality” came directly from State Farm’s own internal documents.

Interestingly enough, that case also disclosed that State Farm had been charging their policyholders for OEM coverage all along. State Farm’s practice of mandating A/M body parts had contributed to State Farm being 30 percent over-reserved. When you convert that to actual dollars, State Farm had $12.6 billion more of their policyholders’ money than was necessary to cover the most dramatic succession of catastrophes.

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In July 2000, nine months after they had ceased using A/M body parts – and knowing they wouldn’t be using A/M body parts any time in the near future – State Farm declared their “Biggest Dividend in History” and returned more than $1 billion in premium overcharges to their auto insurance policyholders.

Judicial examination of existing auto policy verbiage and review of auto insurance company financial records, have already determined that:

  1. OEM coverage already exists in current policies.
  2. Premiums being charged for this existing coverage are higher than necessary.

Insurance companies offering two separate and distinct policies is something that, in my opinion, is going to come back to haunt them. It’s my opinion that if an insured elects to purchase the lower priced policy, this is not going to let the insurer off the hook for pre-accident condition. And by offering OEM parts policies, insurers are admitting that A/M parts are inferior.

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Are consumers being told what consequences each policy will have on their second most expensive asset? Not likely.

Can insurance personnel be held liable for their failure to disclose? Time will tell.

Can a shop be held liable to the consumer for A/M parts that aren’t LKQ? Look no further than Gorman v Liberty Mutual, a Massachusetts court case from Sept. 19, 2000. This case centered on the use of A/M parts. This is what the judge had to say: “When [the shop] undertook to repair the vehicle, it was obligated to perform those repairs in a workman-like manner and with the proper parts. It has failed to do that. Its conduct rose to the level of violating MGL 93A (consumer protection laws) when, having acknowledged that it failed to do that properly, it failed to correct the work.” Liberty’s conduct rose to the level of violating MGL 93A when it was notified that the repairs weren’t proper because of the ill-fitting parts and didn’t authorize the use of the appropriate parts. “There is no question as to the right of the Plaintiff to recover in this matter. Although both Center and Liberty Mutual seek to blame each other, the court finds that both are liable to the Plaintiff.”

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You see, there aren’t two levels of repairs being offered – one for pre-loss condition and one for something less. So when the A/M fender doesn’t fit properly, an insurer is going to have a difficult time explaining to its policyholder. “Sorry, we can’t help you. If you wanted your vehicle fixed correctly, you should have purchased the more expensive option.”

Next year, will the insurance industry offer a policy to correctly paint your vehicle? I can see it now:

For an additional premium, we’ll offer to pay for the correct color match of your repaired vehicle.

And then they’ll try to put a blue junkyard fender on a white car, claiming the policyholder didn’t elect the optional paint policy. Where will it end?

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Writer Bob Collins owns and operates Wreck Check Assessments of Boston. He’s been in the collision repair business for more than 25 years and is a licensed motor vehicle damage appraiser in both Massachusetts and Rhode Island. He performs post-collision-repair inspections and provides consulting services to consumers, repairers and attorneys. Collins can be reached at [email protected]

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