Before any repair work begins at a body shop, a critical step should ideally take place: the customer signs a contract authorizing the repairs.
During the January 22 California Autobody Association (CAA) meeting in Carlsbad, CA, Pooja Nair, litigation partner at Ervin Cohen & Jessup LLP in Beverly Hills, CA, discussed the basic elements of a customer contract.
Nair explained that customer contracts govern the relationship between the customer and the shop, as with any business, and an accurate contract can minimize risk. To help avoid potential liability, she said contracts should outline the scope of work, estimated costs, and payment terms.
“It's really important to make sure that what you have in your contract matches how you actually interact with customers and what their expectations are,” Nair emphasized. “You don't want to have a contract that doesn't reflect what you're actually doing in the shop.”
San Diego CAA Chapter President Juan Martinez, CEO of European Coachworks, invited Nair to present at the CAA meeting so shop owners could hear from an expert about the different scenarios and issues that can easily arise when they don’t understand basic legal theory in day-to-day operations. “With insurer pushback at an all-time high, it’s imperative that shop owners tighten their paperwork to reflect the new normal," he said.
Here are the must-have provisions discussed, and where shops most often get into trouble.
Signed Repair Authorization/Work Order
Nair and Martinez stressed the importance of clearly defining the scope of work, obtaining a wet signature from the customer, and documenting email and text messages sent to the customer to avoid problems down the line. In the event of a dispute, Nair said that having a wet signature or e-signature is more advantageous than verbal authorization.
She has found that employees often use text messages and email to communicate with customers. However, there are downsides.
“Sometimes, everything comes down to one person and when that person leaves, they have all this knowledge that doesn’t necessarily get transferred to the next person,” she noted.
When businesses relied on physical filing in the past, she said it was somewhat easier because all notes were included in the file.
“Now that everyone has moved to digital, there's a lot less control over the process,” she said.
There have been multiple times when Nair has seen a shop attempt to track down text messages and run into problems with actually locating and downloading the text authorization, especially for messages sent months or even years ago.
“If you have your text messages being sent by individuals rather than to an automated platform, or you're using some kind of platform that deletes things after a certain time, then it might be hard to track down when you were communicating with the customer,” she commented.
Therefore, she said, it’s essential that the information is easy to find and the records can be pulled if they're not stored in a physical file, which most of the time they're not.
The statute of limitations for a breach of contract is four years. “People sometimes wait until the last minute to sue you,” she said. “I’ve had a number of cases where people waited several years to file a lawsuit, and no one has any idea where the documentation is.”
Estimate and Supplement Process Disclosure
Nair acknowledged that supplements are typically part of the repair process. However, she pointed out the customer’s perspective when learning about surprise costs and suggested providing clear explanations and obtaining their approval.
“The paperwork should tell customers in advance that supplements may be required, and that you will obtain approval before additional work is performed,” she said. “That's also a regulatory requirement.”
Parts Disclosure
Parts disclosure isn't just about the OEM versus aftermarket, Nair shared. “It's also about what to do when parts get backordered, where there are other issues, and when the availability of parts affects the timeline,” she said.
Martinez noted that it can become contradictory for the body shop when there are different contracts with insurers, customers, and OEMs. “You're making promises to multiple entities,” he explained. “Which one are you really going to honor?”
When it comes to restoring the vehicle to its pre-loss condition, Martinez said it must be repaired in a workmanlike manner. In California, he said that is defined as being restored in accordance with the OEM service procedures.
Payment Terms and Customer Responsibility
This is probably the most important item in the customer contract, according to Nair. “The customer is the person coming into your body shop,” she said. “The insurer is not your customer unless you have a separate agreement with them.”
If the insurer does not pay for something, the default risk falls on the shop unless the paperwork makes it clear that the customer is responsible, she explained. She said the delta between what the insurance company is willing to pay and the repair cost is one of the most common issues the industry is facing today.
As such, Nair recommended that the contract includes assumption of risk language, so the customer understands their responsibility.
“There needs to be the acknowledgement that the customer remains responsible for all repair charges,” she said. “You just have to keep constantly thinking about the fact that insurers are third-party payers that owe the customer and the customer owes you [the repairer].”
Storage/administrative fees disclosure
Nair has found that customer disputes often arise over storage fees, even when the shop is following the correct procedures and has documentation to support them.
“Obviously, the solution isn't to stop charging for storage,” she said. “The best way to protect against that is to try to disclose it clearly, define when it starts and the rate, and document the notice.”
One of the challenges is a lack of understanding of when the storage becomes due.
“Storage cannot be charged while the services are being rendered,” she commented. “Storage can only be charged for either legitimate downtime or delays caused by external sources when you've presented a bill and the client is unresponsive to pickup requests.”
Even if it’s not the biggest ticket item, Nair has observed that it can trigger an emotional customer reaction and create friction.
In response, she advised being as clear and upfront as possible and having documentation. “If that documentation is being done primarily through text messages or email communications, the shop should make it clear to include that the storage is occurring and ensure customers have ample communication when the car is ready to be picked up,” she suggested. “It would be helpful to know in your own system how to track that and how to recreate all the text messages or notifications sent, so you're able to document that process.”
Warranty terms
Nair stressed the importance of always including the warranty terms in the contract. “Customers should be able to understand what the shop warranty is, including how long it is effective and what is not included,” she said.
Martinez reminded shop owners and managers that they can’t warranty parts.
“You can only warranty your workmanship,” he said.
He recommended having an attorney review the contract, including the warranty terms outlined for customers when the vehicle is delivered.
Customer communications consent
Nair has found that many lawsuits are filed as a result of customers receiving unsolicited text messages or emails, even if they have an existing relationship with the business.
Although many small and midsize businesses don't prioritize this, she advocated making sure the customer has consented to receive text messages and emails. She also urged having up-to-date terms and conditions on the website and ensuring that websites are ADA-compliant and comply with California privacy laws. California laws, including the California Consumer Privacy Act, are the most stringent in the country regarding protection of consumer information collected by the company’s website.
Vehicle release
This refers to the paperwork that defines the conditions for releasing the vehicle and what happens to outstanding balances.
Abandoned vehicle policy
According to Nair, it is important to disclose to the client what the expectations and policy are, rather than trying to negotiate them once the vehicle is already in the shop. “Be transparent with everyone,” she encouraged attendees.
Common Pitfalls and How to Avoid Them
Pitfall: Starting work without a signed authorization
Best Practice: Ensure this is completed before the repair begins.
Pitfall: Verbal-only approvals or approvals you can’t recreate.
Martinez pointed out that a contract can be orally amended. “Even though you have a work order and a repair scope that a customer signs, if you get a text message or email from a customer and he or she asks you to stop working on the vehicle, he or she has amended that contract,” he explained.
Best practice: Nair suggested documenting all repairs and approvals. She also advised including “integration” and “no modification” clauses in the contract. This will denote that it is the final written document and any prior oral communications are disregarded. The contract can only be modified in writing and if signed by both parties.
Martinez also talked about the regulatory framework that should be included in the final bill to protect the business.
“It's the little thing that says, ‘I approve an increase from the original estimated price’ and should be on every single final bill in the state of California,” he said.
If the shop does not get an authorization for something that happened in the middle of the repair, Martinez emphasized the importance of including that language on the final bill and having it signed by the customer.
Pitfall: Promising customers that “insurance will cover it” or “you won’t owe anything”
Best Practice: Make sure that everyone at the shop, in any capacity, understands what to communicate to customers.
Pitfall: Not disclosing scan/calibration charges up front
Best Practice: Share all fees with customers in advance of the repair.
Pitfall: Storage fees not disclosed until pickup.
Best Practice: Ensure all storage fees are thoroughly explained in advance when the vehicle is dropped off.
Pitfall: Vague scope of work
Best Practice: Be specific in the contract.
Pitfall: Guaranteeing completion dates
Nair said that timelines and deadlines can lead to liability issues. “There are certain things that you do not have control over in terms of timelines and delays,” she said. “A guaranteed date may come off as a promise in terms of litigation.”
Best Practice: Use an estimated date and provide regular and accurate status updates to customers throughout the repair process.
If the business’s practice is to provide a date of completion on the contract, Nair advised adding asterisks or language to make clear that the date is subject to change, and keep the customer informed about delays when they happen. Like storage pickup, it can lead to friction and cause customers to feel emotional. As a result, Nair said they are more likely to file a complaint or lawsuit.
Pitfall: Poor documentation
Best Practice: Understand your processes and how to recreate the file.
For more information, email Pooja Nair at pnair@ecjlaw.com or visit ecjlaw.com.
Stacey Phillips Ronak