New legislation introduced in the California State Senate would penalize insurers that require repair shops to install aftermarket parts on a vehicle that is still under factory warranty. The bill (S.B. 1059) was introduced in January by Senator Carole Migden (D-San Francisco) and sponsored by the Collision Repair Association of California (CRA).
The bill is designed to prevent repairers and customers from inadvertently voiding the factory warranty on a vehicle in case of a failure caused by an aftermarket part.
The proposed bill is somewhat unusual in that it ties the aftermarket parts requirement to warranty issues. While the repair and insurance industries have wrangled in numerous states over the use of aftermarket parts, this appears to be the first piece of actual legislation to take this approach.
According to the CRA, a member in Southern California was involved in a scenario in which the vehicle manufacturer did not honor the customer's warranty because of an aftermarket radiator used on the car at the insistence of the insurer after a collision.
"The repairer installed it under protest," says Richard Steffen, deputy director of legislative affairs for the CRA. "The car was taken out, the radiator failed, and the engine failed. [The manufacturer] wouldn't pay for the engine. It's in their policy that if you use a non-factory part that leads to operational failure, they don't warranty the part."
The bill would amend actions listed under current California law (Section 790.03 of the Insurance Code) to include the aftermarket part requirement as an unfair claims practice. Violations would carry a penalty to the insurer of $5,000 to $10,000 per occurrence.
"After buying a home, a consumer's second most common major purchase is a new car," says Allen Wood, CRA's executive director. "A major incentive for buying a new car is the manufacturer's warranty that covers the cost of repairs during the length of the warranty. S.B. 1059 adds a layer of protection to the new vehicle warranty."
While federal law (under the Magnuson-Moss Warranty Act) generally protects consumers from unfair warranty claim denials, a warranty can be voided if an aftermarket part causes an otherwise-warranted failure. However, dealers must prove that the aftermarket equipment caused the failure.
Because the bill was only recently introduced, industry associations with an interest in the proposal have yet to produce any formal positions on it. The Association of California Insurance Companies (ACIC) is still consulting with its member companies about the bill, according to Sam Sorich, ACIC president.
"We haven't taken a formal position yet, but it does appear that the bill needs some clarification," Sorich says. "There's no distinction between mechanical parts and body parts, for example. Some members have commented that it's difficult to know whether a vehicle is under factory warranty, and how extensive the warranty is."
According to Steffen, the law simply prevents insurers from requiring the use of aftermarket parts. An insurer could still recommend an aftermarket part be used, and the part could be installed if the repairer and consumer consent. In cases where the repairer believes that a factory part should be installed, the insurer would not be able to override that decision under S.B. 1059.
"It doesn't mean you can't install them," Steffen says. "You can. But it's up to the repairer, not the insurance company."
California collision repairers and insurers have faced off in the legislature over repair parts several times in the past few years. Late in 2007, Gov. Arnold Schwarzenegger vetoed a bill that would have required auto body shops to affirm that the crash parts designated in their written invoices were actually installed on the vehicle. Two other bills, under consideration in 2006, would have certified that aftermarket parts were considered to be equal to OEM parts, and would have established a state-operated licensing system for the certification of aftermarket parts. Neither bill passed the legislature.
Current California law requires only that the insurance company disclose the use of aftermarket crash parts to consumers. Steffen said that CRA has some tentative support from consumer groups. "I've met with everybody who has an interest in this bill," he says. "We think it's pretty solid."
The California Senate Banking, Finance and Insurance Committee will hold a hearing on S.B. 1059 on April 2.
The full text of the bill can be downloaded at CRA's Web site, www.cra-ca.com.
