Tuesday, 28 February 2006 09:00

California bill calls for state to take over labor rate surveys

California State Senator Jackie Speier (D-San Francisco) has introduced SB 1492, groundbreaking legislation that would make the Bureau of Automotive Repair (BAR) responsible for conducting an annual survey of body shop labor rates for the purpose of establishing prevailing rates in different parts of the state. 

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The bill would require that body shops submit their shop's "street rate" to the BAR, which would then produce an annual report of rates by ZIP Code. That report would be used by the California Department of Insurance (DOI) to resolve disputes with insurers over what is a "reasonable cost" of repairing a vehicle. The survey results would be made available to the public on the state's web site.

The bill is being carried by Senator Speier with the full support of the California Autobody Association, according to CAA Executive Director David McClune.

The CAA and other supporters of the bill say that it is necessary because insurers traditionally limit the amount they will pay a shop for labor to "a fair and reasonable rate," often requiring the vehicle owner to pay excess charges over the insurer's acceptable labor rate. California law presently allows insurers to determine what a fair and reasonable labor rate is by doing their own survey, but repairers complain that, in many cases, the rates are arbitrarily set by insurers without any real survey being done.

Supporting this contention is testimony at a recent California Senate hearing by Northern California shop owner Gene Crozat, who testified that he had sued over 200 times in small claims court when insurers refused to pay his posted labor rate, which he maintained was fair and reasonable. In the majority of those cases, the court found that Crozat's charges were fair and reasonable, ordering the insurers to reimburse the vehicle owners for the excess amount they spent to repair their cars.

On the other side of the coin, insurers complain of price gouging by shops because existing California law prohibits insurers from requiring consumers to use a particular shop. The insurers therefore limit their payments to what they say is fair and reasonable. How to determine what is reasonable is at the heart of this legislation.

Proposed rule of '90s

Every shop in the state would participate. For a shop's labor rate to be used in computing the average rate for an area, 90 percent or more of the estimates used to calculate the shop's rate must be at least 90 percent of the shop's posted "street rate" at the time the estimate was made.

Estimates created for DRP contracts could only be used if the hourly labor rate actually charged is at least 90 percent of the "street rate" at the shop. If the shop changed its rates during the prior 12-month period, the rate for the survey will be weighted by the number of months the varying rates were in effect.

The BAR will then calculate the average labor rate for each ZIP code, taking the rates reported in the survey and dividing by the number of shops in the ZIP code.

There would be fines for falsely reporting rates to the BAR.

Fair is plus 10%, with exceptions

Current language in the bill says that an insurer must presume a shop's hourly labor rate is fair and reasonable if the rate is no more than the shop's "street rate"and the rate is not more than 10 percent above the average rate for the ZIP code.

Interestingly, the proposed system could not be used to determine that a shop's rate is unreasonable. Even if the rate on the estimate is more than 10 percent above the average rate for the area, that in and of itself does not make it unreasonable; other factors would have to be used to determine the reasonableness of the rate, including such arcane items as manufacturer tolerances for body parts, heating and cooling of metals during repair and whether or not this adversely impacts the crashworthiness of the vehicle, difficulty of paint matching, R&R of components and other special characteristics of repair necessary to restore a particular vehicle.

Read the full text of the proposed bill at http://www.legislature.ca.gov/the_state_legislature/bill_information/bill_information.html

From this web page, click on "Bill Search." In the search field, type "SB 1492" and once the results are displayed, select "Speier."