The shops, which are located in different states throughout the country, originally had their case dismissed by a federal judge in the U.S. District Court for the Middle District of Florida based on insufficient evidence proving the insurers have an agreement to fix prices.
However, on Sept. 7, the Eleventh Circuit reversed the dismissal.
The repair shops allege State Farm, as well as nine other insurers, “depress the shops’ rate for automobile repair” by setting a market rate that would only benefit the insurance provider. The shops also claim the insurers steer consumers away from non-compliant auto shops, violating federal antitrust and state tort laws.
According to court documents, the Eleventh Circuit elected to move the lawsuit forward, stating the shops supplied reasonable allegations to support their claim of an agreement among insurers to set a market rate for repairs.
The market rate---allegedly devised by State Farm---is determined by the market labor rate and market material costs, both of which are set by the insurance companies, the document states.
“The insurance companies use the market labor rate that one company, State Farm, determines by using a method that is unverified and the results of which State Farm manipulates,” the documents reads. “Also, the insurance companies depress the market material costs by pressuring body shops into using inferior parts and into offering discounts and concessions.”
The document says State Farm uses a “half plus one” method to determine market labor prices. This method calculates the total number of employees or work bays (whichever is fewer) in a market area and lists the shops from fewest employees or bays to the shop with the highest. After the list is totaled, the half number, plus one, is chosen to set the market rate.
Therefore, if there are 10 auto repair shops in a market area, the shop listed at number six would determine the market labor price. However, the document states it is unclear how the method determines a market area.
The shops that filed the lawsuit operate in various states, including Kentucky, Virginia, New Jersey and Missouri. Other insurers included in the lawsuit are 21st Century, Allstate Insurance Co., Geico, Hanover Insurance Group, Liberty Mutual Insurance, Mutual Insurance Co., Nationwide, Progressive, Travelers and USAA.