A Bid to Save the 1963 Consent Decree
“’63 Consent Decree: Enforceable or Forgettable?”
“Can Your Business Survive Without Enforcement of the 1963 Consent Order?”
In the early 2000s, those articles covered the topic of the 1963 Consent Decree, which was initially created when the United States Justice Department settled a class action lawsuit brought against over 200 insurance companies, when three insurance trade associations agreed to refrain from practices like steering and setting prices. The question earlier this decade was whether or not the 1963 Consent Decree should be enforced.
And, in recent weeks, that question has been posed once more. The U.S. Department of Justice is currently considering terminating the decree.
The 1963 Consent Decree was enacted to legally instruct 265 insurers and other entities not to conspire to unreasonably restrain trade and commerce in the collision repair market. They were restricted from setting prices and steering repair work away from certain auto body repair facilities.
“To us, we saw it as a perpetual decree that can’t be sunsetted,” says Tony Lombardozzi, collision repair industry consultant. “To us, it was evident that, at the time, if someone made another insurance company not named in the original decree aware that the terms exist then it applies to them.”
Lombardozzi, who began his repair apprenticeship in 1957 and went on to open his own body shop in 1978, is a supporter of leaving the decree in place for many reasons, but one of the most important being that it “keeps insurance companies on their toes.” In other words, if insurance companies know that the decree is in place, they’re more likely to avoid practices like price-setting.
If enacted in the future, the motion to terminate the decree would be filed in the U.S. Southern District of New York.
In today’s market, and with the evolving technology available in vehicles, the decree does not serve in the interest of competition, Lombardozzi says. He would like to see the decree enforced so it could aid competition.
1963 Consent Decree Impact
A complaint was filed against the Independent Appraisal Plan in 1963. The plaintiffs accused the insurance companies of eliminating competition, forcing lower labor rates and steering customers to preferred shops. The U.S. District Court for the Southern District of New York enacted a decree to end the dispute.
Following the consent decree, insurers and co-conspirators were barred from placing into effect any plan, program or practice that has the purpose or effect of:
Sponsoring, endorsing or otherwise recommending any appraiser of damage to a vehicle
Directing, advising or otherwise suggesting that any person or firm do business or refuse to do business with a) any appraiser of damage to automotive vehicles with respect to the appraisal of such damage, or b) any independent or dealer franchised automotive repair shop;
Exercising control over the activities of any appraiser of damage to vehicles;
Allocating or dividing customers, territories, markets or business among any appraisers of damage to vehicles;
Or fixing, establishing, maintaining or otherwise controlling the prices to be paid for the appraisal of damage to vehicles.
When the decree was initially enacted, Lombardozzi says there was much more public acceptance of insurers controlling how much they have to pay for certain items, whether that was collision repair or property insurance.
Today, the courts are lenient, he says. A judge is more likely to say that an insurer has the right to control the cost of the repair. The decree helps force the use of manuals, and make it so shops are able to price parts based on a normal, free enterprise system.
According to the consent decree, insurance companies were instructed to cancel and abandon their Independent Appraisal Plan and not revive, renew or again place that plan into effect.
For instance, insurance companies might only pay prices in manuals created by third-party providers like CCC, Audatex and Mitchell. They also might base repair time on those in the manuals. And those practices, of course, violate the consent decree.
How to Address the 1963 Consent Decree
Lombardozzi emphasizes that if collision repair shops want to be able to file class action lawsuits against companies for mandating prices, the shop owners and industry members need to speak out.
Some organizations like the AASP-NJ, have issued public statements on the decree. Jerry McNee, the president of AASP-NJ, strongly believes every business entity in the collision repair industry needs to get involved in the discussion.
“It takes a village to raise a kid, [and] it’s going to take everyone in the industry to go to meetings and pick up the phone to call their representatives about this decree to make a difference,” McNee says. Lombardozzi recommends shops reach out to the DOJ and go onto the website to state three to four bullet points as to why they believe the decree should remain in place.
“Right now, no one is really paying any attention to the decree,” McNee says. “If it goes away, it is going to be the Wild, Wild West out there between the collision repair shops and insurance companies.”