Wednesday, 20 June 2012 09:05

CDI Releases Proposed Aftermarket Part Regulation

The California Department of Insurance has released its proposed regulations on "standards for repair and use of aftermarket parts." The proposed changes to the Fair Claims Settlement Practices Regulations largely pertain to the specification and use of aftermarket parts, but also include new requirements for adjusting estimates as well as new consumer disclosures and increased insurer responsibilities in the event a defective part is used for a repair.

The first change adds more specific requirements for estimates written by insurers. Current law simply requires insurers to write an estimate that will allow the repairs to be made in "a workmanlike manner."

The newly proposed sections of law would require insurer-written repair estimates to be in accordance with "accepted trade standards for good and workmanlike automotive repairs by an auto body repair shop," and require that "An insurer shall not prepare an estimate that is less favorable to the claimant than the standards, costs, and guidelines provided by the estimating software."

In addition, the changes would mandate that insurers disclose in writing, on any insurer-prepared estimate that specifies aftermarket parts, that they warrant those parts as "like kind, quality, safety, fit, and performance" as OEM parts.

Another new requirement would provide that should an insurer have "implied, actual, or constructive knowledge" that a specified aftermarket parts is not equal to the OEM parts in terms of quality, safety, fit, and performance, the insurer shall immediately cease specifying the use of these parts and shall notify the estimating software provider and request this part be removed from the estimating software.

The insurer would likewise be required to notify the distributor, manufacturer, and, if applicable, any certifying entity.

In addition, the insurer specifying a part later found to be defective would be responsible for any costs associated with removing and replacing the part with either a compliant non-OEM part or an OEM part.

The Department of Insurance held stakeholder meetings to review the proposal in November and January. Additional changes to state regulations regarding labor rate surveys and prevailing rates are also being considered by the department. Revisions to those regulations have not yet been released by the Department.