Wednesday, 20 June 2012 22:16

Rhode Island’s Auto Body Legislation Called “Great Consumer Bill” but Decried by Insurers

Insurance companies are pushing for Rhode Island Gov. Lincoln Chafee to veto a bill passed by the General Assembly  which is currently on the governor’s desk. The bill would allow auto body shops to directly sue insurers for reasonable reimbursement. Insurers are urging a veto to prevent a flood of lawsuits.

The legislation was originally sponsored by the Auto Body Association of Rhode Island (ABARI) and sought by body shop owners, including the father and sister of state Rep. Peter Petrarca. It cleared its final legislative hurdle at 3:00 am on the final day of the legislative session.

Representatives from auto body shops say the bill is about equity. They claim they don’t have a chance to set their own rates because insurance companies refuse to negotiate.

“It shouldn’t cost the consumer anything that’s not what it’s about. The issue is more about getting the insurance companies to actually negotiate as opposed to taking a take it or leave it stance, which some of them currently do,” said Randy Bottella, president of the Auto Body Association of Rhode Island.

“This bill doesn’t benefit consumers, it benefits the auto body shops. It provides them with more money for the work that they’re doing,” said Francis O’Brien of the Insurers Association of America.

In a letter to policy holders, Robert A. DiMuccio, chairman and CEO of Amica Mutual Insurance, said the legislation that just passed “allows shops to set inflated prices for labor and repairs and [use] the threat of lawsuits to charge these exorbitant repair costs.”

Until now, if a shop felt that it had been unfairly reimbursed, it could take the insurer to court, but only using an assignment of proceeds case where the shop would legally seek reimbursement representing the consumer.

“This is a great consumer bill,” said Jina Petrarca-Karampetsos, who testified in support of the measure prior to the Senate vote. “This is a great bill. It’s a fair bill. This doesn’t require insurers to set a rate for every shop. This just says to every shop, ‘Hey, if you feel you are not getting a fair rate, then go ahead and prove your position in court.’”

PCI New England Vice President and Regional Manager Frank O’Brien was actively posting messages on Twitter as the Senate Judiciary Committee debated the bill on June 12. O’Brien said the bill was bad for consumers and called the measure “the worst auto body bill ever.” He said insurers described the bill as “unprecedented” and the “most one-sided they’ve ever seen.”

“This bill doesn’t benefit consumers, it benefits the auto body shops. It provides them with more money for the work that they’re doing,” said Francis O’Brien of the Insurers Association of America.

AIA believes H.B. 7782A allows for nationally unprecedented private rights of action for auto body shops directly against insurers and is "poor public policy." 

“No other state in the nation allows auto body shops to set non-negotiable rates and attempt to force them on third-party payers under threat of litigation,” said Gary Henning, AIA Northeast region vice president. “This legislation represents poor public policy which could lead to an explosion of litigation. It should be vetoed when it reaches the governor’s desk.”

AIA says that Rhode Island is one of the most expensive states in the nation for auto body repairs. Currently, drivers pay the sixth highest collision insurance premiums in the nation due in large part to higher-than-average claim costs, including labor costs which exceed the national average by 26.7 percent. 

The bill also includes specific language stating that an insured may still assign the rights of their claim to a body shop if they so wish.

The bill passed the Senate 24-11 and is now on the Governor’s desk, provides access to small claims court for shops who feel they must sue to be fairly reimbursed. Current law would require a shop to take these types of issues before a Superior or District Court, with proper legal representation. “If this bill passes, a shop can represent themselves in small claims court for a filing fee of $80,” said Petrarca-Karampetsos, speaking on behalf of the Auto Body Association of Rhode Island (ABARI).

The measure, originally sponsored by ABARI, also includes specific language stating that an insured may still assign the rights of their claim to a body shop if they so wish.

The insurers testifying against the bill argued that the bill forces them to accept whatever a shop demands under the threat of being sued, but that is not so, according to Petrarca-Karampetsos. “This isn’t a name your price bill, this is a bill that requires a shop to prove before a court that their price is a fair one, that their charges are reasonable.”

“The bill doesn’t say that insurers have to reach an agreement. It just says that they have to negotiate in good faith, and if you can’t reach an agreement, the insurer may pay whatever it determines. If the shop doesn’t feel that’s fair, the burden is on them to prove it in court.”

“This actually removes a lot of the hassle and delay for consumers,” Petrarca-Karampetsos said. “If the shop and insurer don’t agree, this bill says to the insurer, ‘Just pay the claim on your number, whatever number you think is fair, write the check, leave it with the shop, and let them worry about it.’ This eliminates all the delays of the past. But perhaps more importantly, the customer is not involved. It leaves them out of it.”

“This law is a simple, fair solution. It doesn’t require regulation. It gives insurers a chance to challenge everything we say, and it does so without a sweeping mandate,” says Petrarca-Karampetsos.

But that isn’t the only new law this bill would create.

The measure also makes changes to how total losses are handled in Rhode Island. Unless Governor Lincoln Chafee vetoes the bill, insurers will no longer be permitted to declare a vehicle a total loss if the cost to restore the vehicle to pre-accident condition is below 75 percent of the fair market value of the car.

“This part of the bill is a real win for consumers,” said Petrarca-Karampetsos. “Today, it doesn’t matter how much a customer might beg and plead with their insurer to fix their car, if they don’t want it totaled. If their insurer got a high bid on the salvage, and can save money even by totaling their car at 50 percent or less, they total the car, no matter what their customer wants.”

In addition, the bill sets forth a new definition of fair market value in the case of total losses.

According to the bill, “Fair market value” means the retail value of a motor vehicle as set forth in a current edition of a nationally recognized compilation of retail values commonly used by the automotive industry to establish values of motor vehicles.

The new definition, according to Petrarca-Karampetsos, would preclude the use of products developed exclusively for the insurance industry, such as the Audatex, CCC, and Mitchell systems, and require the use of guides like the NADA book used by car dealers. The Property Casualty Insurers Association of America (PCI) and the American Insurance Association (AIA) are both opposed to the bill.

AIA, in a press release on June 13, described the bill as “reckless” and called on Governor Chafee to veto the measure. The association said the law would unleash a flood of lawsuits against insurance companies. The bill would take effect upon passage. Download the text of the legislation at autobodynews.com.

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