Thursday, 08 May 2008 04:15

California SB 1059: Consumers to the Rescue

Written by Richard Steffen

While I can load up with reasons why Governor Arnold Schwarzenegger won’t okay collision repair legislation opposed by the insurance industry, I’d prefer to focus on what it would take for him to overturn the wishes of insurers who do business in California. The short answer is “consumers.” And while I’m at it, let me add that “consumers” are the answer to stopping unfair insurer practices in collision repair settlements.

    But first we need some background. A key insurance force in Sacramento is the Personal Insurance Federation of California (PIFC) which represents such giants as State Farm, Farmers and Progressive. Dan Dunmoyer was the president and chief lobbyist for the PIFC until Governor Schwarzenegger pegged him to be one of his top advisers. Having a former PFIC executive close to the governor should raise eyebrows among those of us in collision repair. But in my humble opinion Mr. Dunmoyer gives the insurance industry only one advantage: its point of view will be heard.

    To offset this advantage, the collision repair industry needs its voice to be loud, but frankly, we can’t yell loud enough unless we’ve earned the support of consumer organizations who will work with us to drive home a solid, clear message to the Governor: the integrity of the vehicle collision repair process depends on consumers making an informed choice about their insurance coverage and the manner in which their vehicle is to be fixed.

    The insurance industry is well protected by California law. For example, the state Supreme Court has ruled that in third party insurance disputes the Insurance Commissioner has exclusive purview over Insurance Code Section 790.3 which covers unfair settlement practices —“acts of bad faith” by insurers. This means that third-party claimants that sue insurers can’t tack on “bad faith,” which in other code sections usually brings with it attorney fees and punitive damages — it’s up to Mr. Commish to defend them.

    A few months ago when the CRA sponsored SB 1059 was introduced by Senator Carole Migden, the bill simply prohibited insurers from requiring the use of aftermarket parts. The bill has been beefed up since January 7, 2008, save for one amendment.

    The initial version of the bill was put in the infamous Section 790.3. Insurers went ballistic while the Department of Insurance squinted, quietly saying, “you better go into another section.” We did, making certain this new section was linked to Section 790.3. But we didn’t fully appreciate the temporary angst we triggered by messing with 790.3. In fact, we are still wondering about the insurance industry’s initial reaction.

    But I digress.—.on purpose — because I know insurer lobbyists are reading this column, hoping to gain intelligence on why the CRA is sponsoring SB 1059 and, more importantly, why CRA thinks the Governor would sign a bill the insurance industry opposes. Our strategy is not a secret. We believe the future of the collision repair industry will turn on consumer demand. If consumers want their vehicles repaired properly, we will survive. If consumers would prefer to go cheap, shops will close by the hundreds until we are left with DRP outlets doing all insurance work.

    The CRA and consumer groups want to educate vehicle owners. SB 1059 arms consumers with informed choice and this simple premise: if your new car needs collision repairs, you have a right to know if factory parts or aftermarket parts will be used.

    Two leading consumer organizations in California support the bill: Consumers for Auto Reliability and Safety (CARS) and Consumers Union. That’s right, Consumers Union, publishers of Consumers Report, the most important consumer magazine in the nation, is on the side of the CRA and, more specifically, on the side of vehicle owners.

    Here’s something else. I think Insurance Commissioner Steve Poizner, the lead Republican candidate for Governor in 2010, can enforce the spirit of SB 1059 before it becomes law; i.e., that good old section 790.3 exists to be used. Is it a fair settlement practice for an insurer to diminish the value of a new vehicle warranty by refusing to pay for factory radiators or AC condensers?

    “Now, this diminished value might be okay if the insured knowingly paid for a policy that required use of aftermarket parts. But too many policies mask the insurer practice of charging high premiums while paying for the cheapest parts available when the need arises. I call it the “page 9” approach. This is the stereotypical page where in miniscule type the new car owner, if he or she ventures this far in the terms and conditions section, will read that the insurer will use either factory or aftermarket parts in the repair of the vehicle, which ever costs less.

    This approach isn’t an option, it’s a mandate for aftermarket parts and that may not be fair in the minds of new car owners who want to protect their manufacturer’s warranty.

    In the end SB 1059 requires insurers to reveal their intentions on the use of aftermarket parts on policies covering new cars if repairs will require the use of aftermarket parts. Will insurers oppose a bill that requires them to tell policyholders what’s in their policy? Probably. Will the Governor veto the bill? I’m not so sure. But in the end, regardless of what happens to SB 1059, the CRA and consumer organizations are on to something: the plain truth.

    Richard Steffen can be reached at rsteffen@cra-ca.com.