Thursday, 24 October 2013 19:28

ABAC’s Decade-Long Battle Against the Hartford

For nearly ten years, the Auto Body Association of Connecticut (ABAC) has been engaged in a legal battle with the Hartford Fire Insurance Company (the Hartford), and though the judge and jury awarded the victory to ABAC, the fight is not yet over as the Hartford has appealed the ruling to the state’s Supreme Court. Still, Tony Ferraiolo, President of ABAC, remains optimistic, noting “this is one of the biggest things happening in the industry right now, and it will rock the country if – no, when - we win next year.”

ABAC filed a class-action lawsuit against the Hartford in 2003, claiming the insurer was manipulating labor rates across the state and using steering practices to direct customers to shops on their direct repair program (DRP). Besides getting a discounted rate from their network of DRPs, the insurer also had their appraisers use the same uniform labor rate in their estimates across the state, thus pressuring independent shops to lower their rates. David Slossberg, lead attorney for ABAC in this lawsuit, noted that, as a result of this conduct across the industry, profit margins for auto body shops have decreased from 6% to less than 2%, which disregards the shops’ expenses related to training, equipment and environmental regulations.

In November 2009, a Superior Court jury in Stamford ruled in favor of ABAC, awarding $14.7 million in compensatory damages to the shops represented in the lawsuit because they found that the Hartford engaged in unfair trade practices which resulted in a loss to CT body shops. Earlier this year, in May, Superior Court Judge Alfred J. Jennings granted injunctive relief which mandated that the Hartford “refrain from interfering with the independent judgment of motor vehicle physical damage appraisers in its employ in the performance of their duties… including the determination of the hourly rate to be applied in calculating the labor component of costs to repair.”

The injunctive relief was granted after the jury found the Hartford to be engaging in unfair business practices through the use of in-house appraisers and their network of DRP shops to artificially suppress labor rates in CT. In addition to being prohibited from interfering in their appraisers’ judgments, the Hartford will also be required to submit a Quarterly Compliance Report to the court which must include: (i) the range and average of hourly rates used by each Hartford appraiser, (ii) hourly rate(s) charged by all shops under DRP contract with the Hartford, (iii) any changes the Hartford makes to estimates or appraisals as a result of reinspection or supervisory reviews, and (iv) a summary of any adverse or disciplinary action against any of the Hartford’s CT-licensed appraisers.

Judge Jennings ruled in favor of ABAC and the shops they represent yet again in June 2013, awarding $20 million in punitive damages intended to punish the Hartford for manipulating the labor rate and to deter other insurance companies from engaging in the same unlawful conduct; the award is believed to be the largest unfair trade practices award ever issued in the state of CT. Jennings explained the award was meant to send a message to the Hartford and other insurers that any violations of fair trade rules will not be tolerated.

After the Hartford appealed the court’s decision, a stay was placed on the injunctive relief, but Ferraiolo notes that during the two weeks it was in effect, it seems to have caused other insurers to begin negotiating higher labor rates and concessions. He emphasized that appraisers should be negotiating rates on a shop-by-shop basis, establishing labor rates based on the individual shop’s business model, the quality of their repairs and the model of the car being repaired.  “What we have sought to achieve in this lawsuit is simply for the Hartford and its appraisers to follow the law,” said Ferraiolo.  “We already won the case, but now we’re dealing with the political and bureaucratic nonsense. Yet, there is merit in the fact that we’ve engaged in a ten-year battle, and the jury decided in our favor.”

ABAC also acts as a “watchdog” on their members’ behalves, meeting with legislators to explain how the Hartford’s actions negatively impact their constituents. Ferraiolo says, “we’ve had a lot of success in showing the negative impact on consumers, but the insurers consistently try to muddy the waters. Still, this is industry-changing stuff! As long as it doesn’t become politically corrupt, we will win next year.”

Like Ferraiolo, Slossberg is confident that after fighting this battle for more than a decade, the ABAC will ultimately prevail. “This case should give hope to all those individuals and small businesses who think they can’t push back against the big insurance companies.  The ABAC and some 1000 small businesses in the State of Connecticut won a hard fought and well-earned jury verdict which was followed by carefully written and well-reasoned decisions by the trial judge regarding injunctive and punitive damages.” While Ferraiolo is definitely pleased with the court’s ruling, he is less confident that the Hartford will comply with the judge’s mandates, noting that the insurers just don’t seem to be getting the message, despite ABAC’s victories in court.

Ferraiolo believes that DRP shops are part of the problem because they are doing the publicity for the insurers, claiming that it’s necessary to be on DRPs in order to stay in business. He notes, “they’ve helped build this big monster, but now they can’t destroy it.” A & R Body Specialty, Ferraiolo’s shop, is a medium-sized, independent shop which represents that market that’s in trouble as most mid-sized shops participate in DRPs in order to stay in operation; however, he insists that while solutions are few and far between, and shops like his are at a competitive disadvantage due to the unfair trade practices of the Hartford and other insurers, independent mid-sized shops are trying to  compete in the market by providing education to both their employees and the consumer and by offering excellent customer service.

Because the case is still in the appeals process, none of the shops have received any of the awarded funds yet. If the Hartford’s appeal is rejected, each member of the class-action lawsuit will have to apply to receive their share of the money, and the trial court will establish a process to distribute the funds. The class originally began with 1000 CT body shops, but it has since grown to include an estimated 1500 shops affected by the Hartford’s practices. The sheer number of complainants “shows the breadth and extent of the damage caused by the defendant’s misconduct,” according to Judge Jennings. In establishing the amount of punitive damages, Jennings also considered the net worth of the Hartford, somewhere in the $12 to $13 billion range, in order to ensure the award would be a meaningful deterrent to the insurer.

Jennings has not yet determined the amount that will be awarded to ABAC’s attorneys who have not received a cent of compensation from this ten-year long lawsuit. Ferraiolo praises the attorneys’ dedication to the cause; “our attorneys are aggressive and are working very hard to win this case. They have just as much, if not more, invested since they don’t get paid unless we win!”

In fact, these attorneys have proven their support of local auto body shops yet again by representing ABAC in a second, similar lawsuit which was filed four years ago against Progressive for steering and labor rate suppression. This case is being pursued in Federal Court, and ABAC will be seeking class certification later this year. As Ferraiolo stated repeatedly, these lawsuits could change the collision repair industry if the association is victorious. Industry leaders from other states have already begun contacting ABAC to express interest and seek advice on how to pursue these types of battles.

The Hartford was contacted for comments, but none have been received at press time.

Auto Body Association of Connecticut (ABAC)
104 Cheshire Rd
Prospect, CT 06712

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