Minnesota shops bring $20,000 state penalty against AIG over 'short paying'

An organized effort by Minnesota collision repairers to actively confront “short paying” by insurance providers has resulted in a $20,000 fine along with a cease and desist consent order against AIG insurance from Minnesota’s Department of Commerce.

A review of similar alleged practices by other insurers is ongoing, according to Bill Walsh, spokesman for Commissioner of Commerce Glenn Wilson.

“We are making this a priority in Minnesota and have several other investigations/market conduct exams going. I can’t give you the names of the companies involved until we have an official order,” Walsh says.

Wilson also ordered AIG to reimburse policyholders and third-party claimants within 30 days for whatever funds they were forced to pay out-of-pocket. Collision shop owners throughout the Land of 10,000 Lakes have long been contending that certain insurance companies are not paying the full cost of necessary vehicle repairs.

“Since AIG did not have language allowing them to bill this way in their policies, we did not think they could justify their payment system under Minnesota law,” Walsh explains. “When the costs started getting passed on to Minnesota consumers, we stepped in to protect them from these higher costs.”

AIG opted for informal disposition of the matter without an official hearing, accepting the terms of the commerce department’s consent order.

“We are glad we reached an amicable agreement with the commissioner that is in the best interests of consumers,” says AIG spokesman Joseph Norton.

The order was based on allegations that AIG paid a supposed “prevailing rate” to Minnesota body shops that was less than the actual amount charged for various repair procedures. The practice resulted in some insureds and third-party claimants having to pay the extra cost themselves, violating a statute stating that the involved insurance company must cover “all costs for the satisfactory repair.”

During the past year, the Alliance of Automotive Service Providers-Minnesota (AASP-MN) has submitted “dozens and dozens” of unfair claims practices reports to the Department of Commerce, many of which documented AIG short paying the hourly rate for paint and materials, according to Judell Anderson, AASP-MN’s executive director.

“The association has continually encouraged its members to document cases of improper insurance company practices,” she says. “In the case of short pays, AASP-MN has urged its members to stop absorbing these costs and to inform their customers that they will be responsible for their insurance company’s failure to pay reasonable costs,” Anderson asserts.

“This is an example of how the repair industry can make a difference – provided they’re willing to take the time to document instances of insurer misconduct. When these practices result in harm to consumers, regulatory agencies are much more likely to intervene and take corrective action,” she adds.

“Unfortunately, in an effort to protect their customer, shops inadvertently perpetuate insurer practices that are detrimental to the repair industry and consumers in the long run” when the shop picks up the unpaid portion of the bill. Anderson points out.

It was tough, but necessary, to take the stance of making customers pay out-of-pocket, says Jim Siegfried, vice president and co-owner of Crystal Lake Automotive, Inc. in Lakeville.

“The dollars are pretty minimal, but as a shop we can no longer afford to eat those dollars,” he notes.

Crystal Lake’s short pays ranged from $2 to $30 -- not enough to put pressure on a customer’s paycheck, yet it caused consternation nonetheless.

“The consumer should not be in the middle of this. There should be no out-of-pocket expenses for the consumer,” says Siegfried, an AASP-MN past-president.

A clear and diplomatic approach is best when advising customers of the situation. “We explain it to the consumer and let them know what’s going on. They’re usually pretty good about it.”

It’s a little touchier when the aggrieved customer is a victim of a crash caused by the paying insurer’s policyholder. “The claimant can get a little upset about it,” he observes.

When an insurer decides not to pay the proper amount, the patron is told that “your insurance company has chosen not to do that.” At that point, “they call the insurance company to ask what’s going on,” Siegfried recounts. People also tend to contact the commerce department to register a complaint.

At the same time, the body shop files appropriate documentation of the incident with AASP-MN.

“I batch them and submit them about once a month” to commerce department staff, says Anderson.

“We submit every documented case,” she adds. “Dozens and dozens” of complaint forms have come into association headquarters, representing several insurers. These other companies remain targets for regulatory action similar to what AIG has experienced. “Nobody is off limits in this. It’s an ongoing issue and there are ongoing investigations going on,” Anderson reports.

“The great majority of (similar) incidents are undocumented,” she laments, emphasizing that collision repairers need to be diligent about making short pays part of the official record. The process, unfortunately, includes having the customer pay out-of-pocket: The commerce department is not particularly concerned about the woes of a body shop owner, but it will act when the citizenry is impacted.

“That was the hardest part, because the shops always want to do right by the customer,” says Anderson. “We kept pounding home the fact that the only way regulators will get involved is if consumers complain. Or even if they don’t complain, we can show that consumers have been harmed,” she explains.

“The commerce department is doing what they should do – taking care of the consumer,” says Siegfried. While it may take a while for the bureaucratic, short-handed agency to take official action, he views the $20,000 fine against AIG as “a step in the right direction.”

Siegfried goes on to note that “to an insurance company, that’s not a lot of money. But hopefully it will open their eyes. It’s not the amount; it makes them aware” that consequences loom when the full amount of a repair is not paid.

“This rate thing has been going on for a number of years,” Siegfried points out. “The only way we can make this go away is to have the insurance companies work closer with us.”