Enforcement ramifications anticipated after airing of alleged steering, corruption problems in major LA Times story

California collision industry advocates believe they may have hit a home run with a hard-hitting news story published in the Los Angeles Times. The piece, which ran Oct. 17, airs forceful allegations of steering, bribery and corruption connected with certain direct repair programs.

The story by LA Times staff writer Ralph Vartabedian reported contentions from the auto body industry that “shops are being forced to perform substandard repairs and that some insurers are strong-arming shop owners with ‘pay to play’ demands.”

The article prominently quoted Allen Wood, executive director of the Collision Repair Association of California (CRA). “Some of the dirty little secrets are beginning to come out,” Wood said in the story. “There is a huge amount of money at issue here. This type of business practice creates a very unfair climate for shop owners.”

Evidence so far shows that at least some insurance company officials are demanding kickbacks to direct work, Wood maintained.

The story is expected to have significant ramifications for the collision repair industry because of the newspaper’s national stature; it is the fourth-largest American daily with nearly one million readers. (USA Today ranks No. 1 in circulation, followed by the Wall Street Journal and the New York Times.)

“It’s been creating quite a buzz for us in California,” Wood tells ABRN as he discusses the article’s potential impact. “We’re doing whatever we can to move the story forward.”

A key goal is encouraging the state’s Department of Insurance to pursue the matter. “We’re hoping that they’ll open an official investigation into this,” he says.

“I’m hoping it hits a home run; I’m keeping my fingers crossed,” concurs L. Douglas Brown, a lawyer representing CRA member Autocraft of Torrance, who also was quoted in the piece. “The Department of Insurance has been slow to respond to this issue,” he says to ABRN. Additionally, he notes, “There are law enforcement agencies that are looking at various issues.”

Vartabedian opened the story by reporting that the Automobile Club of Southern California recently fired a unit manager in its collision repair section and has embarked upon an internal investigation. The employee allegedly “took gratuities” from a since-dismissed Autocraft manager in exchange for policyholder referrals from the Auto Club, the story said.

The owner of Autocraft is semi-retired, Brown says, and the terminated Autocraft manager was an independent contractor who had been engaged to run the facility. The shop views itself as a victim, and complaints have been filed with the Department of Insurance and Torrance police.

The Auto Club vigorously defended its program, denied wrongdoing and said it is cooperating with authorities.

“This is a wide-ranging issue that affects not only AAA but many insurance companies,” Brown told Vartabedian in the story. “This is the tip of the iceberg.”

Vartabedian made the point that, “Indeed, interviews with independent body shop owners indicate a widespread belief that they are being shaken down by aggressive insurers and their employees. These directed repair programs have succeeded in directing the majority of policyholders with damage claims to pre-selected garages,” he wrote.

“If it is true that body shops are paying kickbacks to get such business, then the general public is ultimately footing the bill in the form of higher premiums for those improper payments,” Vartabedian continued.

He also noted how some body shop owners he interviewed “said they could not speak for the record because they feared repercussions from the insurance industry.”

CRA member Todd Bishop, owner of Dibbles Auto Body in Santa Rosa, did go public with the Times, maintaining that he is fighting back by bringing lawsuits in small claims court over alleged under-payments. And he is scheduled to go to trial next year with a case he filed in federal court against GEICO, in which he alleges that the insurance giant has engaged in illegal steering.

(GEICO executives have consistently declined to respond to telephoned and written requests for comment regarding steering issues in California. The company says in press releases that its customer service garners excellent reviews from policyholders.)

“We all thought direct repair programs were a good idea at first,” Bishop said to Vartabedian. “We thought we could save insurers money by performing better repairs more quickly. But this greed factor entered in, and insurers are driving up their profits. They have adopted this policy that if a car is more than a year old, it is free game to cut every single corner,” Bishop was quoted as saying.

Wood, who spent more than 30 years as an enforcement manager with the California Bureau of Auto Repair before joining the CRA, said to Vartabedian that “in many cases, insurers refuse to pay prevailing labor rates and set caps on the maximum amounts for certain services, such as painting over collision damage. In some cases, paint is subject to a $300 limit, far below the actual cost of the materials needed for repairs.”

Addressing collision shop owners in other states, Wood advises ABRN readers to make their voices known by contacting the news media and public officials with their concerns. Avoid the griping that may take place behind closed doors at association meetings and stick to the facts as you know them, he suggests.

“This is a huge issue to the repair industry, but because of the seriousness of the issue you have to be careful,” Wood explains.

“If you want to get these articles in the paper you have to come forward and talk about them. The industry needs to step up,” he urges.

Due to the widespread the exposure generated by the Times, “I expect other people to come forward because of this. Golly knows where this will lead,” he observes.

“A lot of people may have had problems (with fewer insurance referrals coming into their bays), but they didn’t know why,” Wood says. As official investigations bring heat from enforcement personnel, those involved in questionable activities, including body shop owners, “may squeal like a pig – and who knows where this will lead. If these allegations are found to be true they’re likely to face a serious penalty.”

The CRA has been actively pushing for resolution of the alleged steering problems in California, lobbying the Department of Insurance and state legislators to take action, Wood points out.

“Instead of sitting back and thinking about this for several months, we respond. You’re dealing with big business. It’s a David and Goliath issue and sometimes the little guy wins,” he says. “That’s one of the advantages that the industry has by working together.”

It is not publicly known how Vartabedian was steered toward covering the steering allegations. “I was talking to one guy at the LA Times, and lo and behold Ralph was already working on a story,” Wood recounts. “The reporter who wrote this article is very attuned to the industry – I didn’t have to sell him. I have worked with him before, so it was a natural response for him” to pursue the story. “It appears that the individuals involved have some good information.”

Follow-up stories are likely, Wood says. “I’ve got a feeling that there will be more to it,” although he has not discussed the matter with Vartabedian: “Most reporters are not forthcoming with what they plan to do in the future.”

Wood goes on to comment that within the organization, the CRA moniker also stands for “Courage, Responsibility and Action.”

If you want coverage of your state’s particular problems, meet and greet media members and government officials. Promptly return reporters’ telephone calls while avoiding exaggerations and name-calling. “You have to have the respect of the people you’re working with,” he says. “We have to be on-point and responsive; it helps with presenting the issues.”

According to Wood, “These are consumer issues – they affect the consumers and how they get their cars fixed.”

Brown, the lawyer for Autocraft, contends that “this is a fairly wide problem and a cancer on the industry that needs to be addressed. We believe there is evidence of violations.”