But shop owners can do a lot to limit their exposure to potential lawsuits by being prepared, and by recognizing potential liability issues before they become a problem.
"Liability can arise through different types of parts that shouldn't be used or different repair procedures," says attorney and former shop owner Andrew Rodenhouse. "You've got to be able to recognize a potential liability when it comes through the door of your shop."
Rodenhouse presented a session titled "Understanding a Body Shop Owner's Exposure to Potential Lawsuits" at NACE on Sunday morning, and provided owners with advice on how to stay out of court and protect their assets.According to Rodenhouse, DRP agreements can often exacerbate liability issues because insurers may insist on using aftermarket structural or safety parts, or repair procedures that go against OEM recommendations.
"Michigan, for example, has a statute that forbids the use of certain types of aftermarket parts," Rodenhouse says. "It's up to the shop owner to check with a local attorney and see if the state requires them to avoid using certain structural components."
In cases where a state has outlawed the use of aftermarket structural parts, they can't be used even if the customer agrees to having those parts put on the car. "It falls under strict liability," Rodenhouse says. "If you put an aftermarket core support on there, and the family gets into an accident, there's going to be liability. If the investigation reveals that you used aftermarket reinforcement that alters the timing of the airbag sequence it doesn't matter if the customer approved it or not."
"Generally the rule is that if you put in a product you know to be defective or inferior, you’re going to be liable," Rodenhouse adds.Even if an insurer insisted that aftermarket parts be used, per a direct repair program (DRP) agreement, the shops are often left holding all the liability because DRP agreements frequently include indemnification clauses that relieve insurers of liability.
"A distributor or manufacturer of that part may also be liable, though," Rodenhouse says. "A plaintiff could recover from either the shop or the manufacturer."
The use of structural aftermarket parts has become a hot topic of late because of a series of demonstrations conducted by I-CAR instructor Toby Chess demonstrating that some of these parts are made from inferior materials.
"From a liability standpoint, once you get into structural components that affect timing of the restraints, you're looking at a tremendous amount of future liability that your general insurance carrier is probably not insuring you for," Rodenhouse says. "That's a scary proposition. You could be nearing retirement, and you could get sued for millions. You could lose everything."
Reconditioned parts, like used glass or suspension components, can also open the shop up to future lawsuits. Rodenhouse says that salvaged airbags, which some insurance companies and the salvage industry have been promoting as a way to shave repair costs, put a huge bull's-eye on a body shop."If someone is thinking of using a used airbag on a car, you might as well hand over the keys to your shop and your checkbook to that vehicle owner," Rodenhouse says.
Owners should also be on the lookout for vehicles with pre- existing damage. A sub-standard repair by a previous shop that would otherwise leave the vehicle unsafe can come back to bite you if those issues are not addressed during the current repair.
"If the insurance company or the customer refuses to let you do the proper repair, you can't put that vehicle on the road," Rodenhouse says. "You tell them that you can't fix it, and that it will only leave the shop is if it's towed out."
Owners should carefully read DRP agreements so they are aware of any indemnification clauses. "When people read those agreements, they pay the most attention to how much they are getting paid, but they gloss over the boilerplate language. That's the most important language in a contract," Rodenhouse says. "That tells you about indemnification, rights and duties, how you can cancel the contract. That's the stuff people litigate over."
If you don't understand the contract language, review with an attorney before signing anything. "At that point it's a business decision," Rodenhouse says. "You decide how much risk you want to assume."
Rodenhouse recommends that shops not use any aftermarket structural parts; always use OEM-recommended repair procedures; inspect all parts as they arrive; stay up to speed on local environmental codes and ordinances; and make sure everyone on staff maintains the proper licenses.
Although some of these recommendations may increase repair costs or cause issues with insurance carriers, Rodenhouse says the benefits of liability protection are worth it.
"If you are known as a shop that cares about customer safety, ultimately you will wind up being a successful shop because people will trust you," he says.
