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Insurers
are clearly benefiting from the use of preferred repair shops: They
receive discounts on parts and labor and can dictate which parts and
repair procedures are used. As a result, insurers can minimize the cost
of the repair, their expenses, and, as the insurance industry is quick
to point out, your auto insurance costs. But is insurer zeal to save money fueling illegal practices that undermine your choice of repair facility?
A
national trend could be emerging: Independent body shop owners are
filing "business interference" cases against insurance companies. In
one, a startling judgment was passed in October 1999, when an Illinois
jury awarded American Auto Body, a Springfield, Ill.-based independent
repairer, $24 million in punitive damages because State Farm illegally
interfered with its operations by steering customers away from the shop.
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The choice is yours
Most
states have laws on the books that limit the ability of an insurer or
other institution from recommending or directing consumers to specific
body shops.
See your state's steering law:
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American
Auto Body alleged that, in 1992, State Farm slandered the shop's
reputation in front of customers and took away American Auto Body's
business. Six consumers, all potential American Auto Body customers,
were told by State Farm personnel that the insurer could not guarantee
the repair at American Auto Body and that State Farm had experienced
"difficulties" dealing with American Auto Body, according to the
complaint.
After the jury verdict, State Farm settled with American Auto Body. The terms of the settlement are sealed.
State
Farm's official policy is that it does not "steer" customers to one
body shop or another. In fact, it is illegal to steer customers to
certain body shops in many states (see sidebar).
Rocco Avellini, owner of Rocco's Collision Center in Hawaiian Gardens,
Calif., has also been on the bad end of steering. Avellini was a
preferred repair shop for Farmers for six years and was on the
insurer's Circle of Dependability (COD) list from September 1996 to
September 1998. Since he was "kicked off their COD list," he says he
has seen the stream of cars into his shop dry up and an increase in the
number of derogatory letters from Farmers to his customers about his
repairs. One Farmers senior claims representative wrote to an
Avellini customer on March 25, 1999, "Our customers have experienced
delays in the past [at Rocco's] and Farmers does not guarantee their
repairs." The claims representative then recommended four other repair
facilities to which the customer could take his car. Another Farmers employee, this time an auto property
claims supervisor, told one of Avellini's customers, "Rocco's is very
expensive and it is very difficult to get along with Rocco's." That
same supervisor also allegedly told the customer, "Farmers would go
broke if they paid bills like Rocco's." The supervisor did not deny
that he made the statements, but in a memo dated Nov. 4, 1999, to
Avellini, the supervisor calls the reported allegations "inaccurate." Critics of the preferred repair shops lists agree that
steering is a widespread problem and that the big auto insurers aren't
the only ones being accused of steering. A case filed in Los Angeles
Superior Court in 1998 alleged that Clarendon National Insurance Co.
forced one of its policyholders to use a repairer located 60 miles from
his home. Clarendon settled the case in July 1999 for an undisclosed
amount. But what
goes around comes around. Repairers also rake insurers across the coals
when it comes to billing and repairs and, ultimately, the consumer
suffers. "Is body shop fraud out there?" asks Gerald Manuel, second
vice president for claim performance auto collision damage at
Travelers. "Yes, we run into it." For example, a body shop might bill
for a new door but Travelers will find that a used door was put on the
policyholder's vehicle. "Typically the response you get from the body shop is,
'Hey, I was going to call you.'" Manuel says that normally, if
Travelers detects fraud, it will demand compensation from the body
shop, get the car repaired again, and might take the shop off the
preferred list if the shop refuses to compensate the consumer and
Travelers. That doesn't happen very often, according to Manuel.
| State Farm recognizes that body shops are padding their hours. |
State
Farm recognizes that body shops are padding their hours or charging for
repairs that were not done but, "We don't call it fraud," says Dave
Hurst, a spokesperson for State Farm. "It's more like claim inflation."
Hurst says it happens more often than "real fraud" — like the practice
of a body shop "enhancing" damages on a car.
Hurst
explains that sometimes a body shop will tow the car to its facility
and take a hammer or wrench or other blunt instrument and wreck the
damaged car a little bit more. "They'll say it was a towing accident,"
he says. Hurst says that this type of fraud is "not uncommon," and
normally doesn't take place within State Farm's preferred body shops. Farmers Insurance has acknowledged auto body shop fraud
in a big way: It filed suit in September 1999 against 14 body shops and
one former Farmers employee in California for similar practices.
Farmers found that "various auto body shops were deliberately
submitting fraudulent property damage reports, repair estimates, and
billings to Farmers . . . [with] help from the inside." A Farmers
employee helped the body shops process more than 290 fraudulent claims.
Shan Haider, a Farmers special investigative unit manager
in Los Angeles, says that all insurance companies are acutely aware of
the body shop fraud problem, but actions don't always match the
awareness. "The auto body industry needs to be cleaned up a lot," says
Haider. "Too much of our insurance premiums go to pay fraudulent
claims," says Jerry Carnahan, an executive for Farmers in California.
Property/casualty insurance fraud costs insurers and policyholders an
estimated $20 billion per year, according to the National Insurance
Crime Bureau. That's between $100 and $300 per policyholder per
year.
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