Monday, 28 February 2005 09:00

2 states attempt to enact legislation against tied shops

As Texas autobody shop owners continue to await a decision on Allstate vs. Abbott - the insurer's challenge to H.B. 1131 prohibiting insurer-owned collision repair facilities - two other states have introduced legislation attempting to ban tied-repair facilities. Although there are no Sterling Autobody shops or Caliber Collision Centers in Indiana and Missouri, those states are making a pre-emptive strike against insurer encroachment upon the independent body shops. 

"If these laws pass, supporters of the bills will have a hard fight ahead," stated Larry Stafford, owner of River City Collision, Austin, and a witness in Allstate vs. Abbott. "When Allstate chose to take this issue to court, they spent a lot of money to fight against the bill. They hired Kirkland & Ellis - a very expensive law firm, to pursue the overturn of H.B. 1131.

"Unless they [Missouri and Indiana] have really strong shop owners lobbying, and support in the legislature, they will have a hard fight on their hands." Having said that, Stafford continued that such a law can be enacted. "We did get the Texas law passed, which was an achievement in itself."

Indiana and Missouri will be facing Allstate's attitude that "in a nutshell, H.B. 1131 is an unconstitutional exercise in lobbyist-generated special interest, parochial legislation," offered up to the court by attorney Ken Starr, former U.S. independent prosecutor and currently dean at the Pepperdine Law School.

Missouri Senate Bill No. 137

The Missouri legislation, introduced by Senator Larry Gene Taylor (R) on January 5, 2005, encompasses prohibition of insurer-owned repair facilities, anti-steering bans and the requirement that any existing tied-repair facility relationships be dissolved by 2008.

SB 137 is concise and to the point: "No insurer…shall acquire or maintain any ownership interest in an auto body repair shop or a windshield repair or replacement shop. An insurer that has an ownership interest in an auto body repair shop or a windshield repair or replacement shop shall divest itself of this interest by August 28, 2008."

The bill further states that "no insurer…shall offer an incentive or provide compensation to any person for the purpose of rewarding that person for referring an insured to an auto body repair shop or a windshield repair or replacement shop within which the insurer maintains an ownership interest."

Enforcement provisions are provided for both of these sections.

The bill has been assigned to the Committee on Small Business, Insurance & Industrial Relations but no hearings have been scheduled.

Indiana Senate Bill 271

Introduced on January 6, 2005 by Republican Senator Tom Weatherwax (District 18), SB 271 states that "an insurer may not own or acquire an interest in a repair facility." Furthermore, "an insurer that owns an interest in a repair facility that was open for business or on which construction had commenced before July 1, 2005, may (1) maintain the ownership interest; (2) relocate the repair facility; and (3) operate the repair facility," if the insurer complies with certain stipulations.

An insurer that owns a repair facility is considered to have a "favored facility agreement with the repair facility." If an agreement exists between the insurer and more than one other facility, the agreement must be identical to the favored facility agreement entered into by the insurer with any other repair facility.

If the law passes, an insurer that owns an interest in a repair facility must notify its customers of the relationship with the repair shop by prominently posting the following notice:

"This repair facility is owned in whole or in part by (name of insurer). You are hereby notified that you are entitled to seek repairs at any repair facility of your choice."

A further provision does not allow a tied repair facility to use the insurer's name, trademark, brand or logo any differently than it is used for another repair facility which has a favored facility agreement with the insurer.

The bill has been referred to the Committee on Commerce and Transpor-tation, on which Senator Weatherwax serves, but no hearings have been set as yet.

Texas decision impact

Although he is not yet familiar with the substance of these two new bills, Jack Hoengarten, defense attorney for Texas Attorney General Greg Abbott (and the other defendants), suggested that "if the bills are similar to the law that was challenged in Texas, the court's decision may well address any constitutional issues raised by similar legislation in the other states."