More than a decade ago, Illinois shop owner Bill Ebert won a $24.3-million jury verdict against State Farm Insurance in his suit against the insurer for tortious interference. (The actual amount Ebert received, through a confidential settlement reached to avoid having the insurer appeal the verdict or a judge reduce the award, is believed to be significantly less.)
Although such suits aren't new, more shop owners are turning to the courts for justice or relief, whether through assignment-of-proceeds actions, class action lawsuits or individual suits.
Here's a look at some cases, what they could mean for the industry and what the participants would tell others thinking about pursuing similar action in the courts.
Using assignment of proceeds
A number of shops have successfully used assignment-of-proceeds actions to collect amounts insurers refused to pay for repairs. Because of the policy contract between the consumer and insurer, it's generally the consumer's responsibility to sue an insurer for an amount not paid. But shops can use assignment of proceeds essentially to sue the insurer on the consumer's behalf.
Shops generally wait until they have a number of claims against a single insurer, said Patrick McGuire, an Illinois attorney who's assisted shops with successful assignment-of-proceeds cases. From a shop owner's perspective, it's not without cost, so the shop has to figure out when it makes sense to do it, McGuire said.
"When it makes the most sense is when you see a pattern of the same type of procedure or part or operation not being paid for," he says. "You can aggregate those types of claims and bring them as one action and get an actual resolution to an ongoing problem, as opposed to taking it piecemeal, on a one-by-one basis."
In most states, such cases can go through a small claims court, but McGuire cautions that shops need to know court rules in their state. In Illinois, for example, a corporation (rather than an individual) bringing a suit in small claims court must be represented by an attorney.Not all states allow for a shop winning such claims to collect legal fees, too, McGuire said. To do so in some states, you must show the insurer's refusal to pay was intentional or unreasonable.
But there are mistakes shops have made in filing assignment-of-proceeds cases. Sometimes they're a little overreaching, asking for more than just the proceeds of the policy.
"You just have to be careful how you draft, or have an attorney draft, your assignment, so you're not overreaching, which can jeopardize your right to go after even the valid part," McGuire says.
The class action route
One of the industry's more dramatic courtroom victories came this past fall in a nearly $15-million judgment against The Hartford in a class action lawsuit brought by shops and the Auto Body Association of Connecticut (ABAC). A Connecticut Superior Court jury found The Hartford had engaged in unfair trade practices.
As The Hartford, which continues to deny any wrongdoing, prepares an expected appeal of the verdict, the association has filed for punitive damages and a court injunction to end The Hartford's exclusive use of in-house appraisers, which the association says excludes independent appraisers and forces shops to accept artificially low labor rates.The shops received a boost in their efforts earlier this year from Connecticut Attorney General Richard Blumenthal, who voiced support for a court injunction. In Blumenthal's filing with the court, he said the state has an interest in preventing the unfair suppression of labor rates that significantly harms the state's economy and results in extreme economic hardship for independent automobile body repair shops.
So are such class action lawsuits an effective tool for shops? A number of shops involved say that by the time the pool of money is distributed among 600 or more Connecticut shops, the few thousand dollars each may receive is small compensation given the number of years the ongoing legal process continues to take.
Shop owner Bob Skrip, president of the ABAC and one of the three shop owners named as plaintiffs in the suit, said what the ruling means in terms of the way insurers conduct business is more important. The ABAC tended to view the suit as centered around steering by insurers through direct repair programs. The jury finding appeared to focus more on The Hartford's use of in-house appraisers as a means to control rates. So it remains to be seen what change, if any, the ruling will have on insurer behavior.
The ABAC and its attorneys believe the jury award gives them a great amount of momentum in a similar lawsuit the association has filed against Progressive Insurance, and a lawsuit against a third insurer could be filed.
"That may depend on the reaction out in the market," Skrip says. "We're hoping the market adjusts accordingly so we don't have to go through all this again with a third insurer. But if we need do, we're all ready."
Individual shop suits
Talk with most shop owners who've been involved in individual lawsuits against insurers – even those who've been victorious – and most say they're not sure they'd recommend that course of action for others.
"I watched my father get wrung-out by the process," says Wade Ebert, whose father won his lawsuit against State Farm more than a decade ago. "It was hard on him. It became a second job. It takes a toll. The cost in time alone is staggering."
But like the Eberts, New York shop owner Greg Coccaro felt he had no choice but to file the tortious interference he's in the midst of with Progressive Insurance. He believed he had to change claims practices being used against his shop, and the suit was necessary to restore his shop's reputation and value after Progressive sued him for fraud. (That case was dismissed in 2008.)
For every case that's successful, there are plenty that fail. In March, a U.S. District Court judge in Florida dismissed a slander lawsuit brought against State Farm by Gunder's Auto Center in Lakeland, Fla. The suit alleged State Farm intentionally interfered with the shop's relationships with its customers by falsely saying the shop was overcharging its customers and making repairs in an untimely, inefficient and substandard manner. The suit identified three specific customers the shop said would have had repairs done at Gunder's but didn't because of the insurer's statements.
In seeking summary judgment to dismiss the case, State Farm successfully argued that even if its employees made false statements, such statements are privileged because State Farm was communicating with a party seeking benefits under the insurance contract about an issue in which they have a common interest: the prompt and full payment of the repairs. The insurer said the statements involve "the quality, timeliness or value of the plaintiff's automobile repairs – subjects about which the insured and State Farm share a 'corresponding interest.'"
The court agreed that State Farm's statements were privileged, and though it said the shop still could have prevailed if it showed State Farm "uttered the statements with express malice," the court ruled no evidence of such malice was presented.
"State Farm neither attacked the plaintiff's moral character nor accused the plaintiff or its proprietors of violent crime; each allegedly slanderous statement concerns only the matter of common interest between State Farm and the insured: the quality and value of the shop's work," Judge Steven Merryday ruled. He said Gunder's failed to present evidence showing State Farm's primary motive was to harm the shop rather than to further State Farm and the insured's mutual interest in securing timely, quality repairs.
Ebert, Coccaro and Gunder say it's important to understand the costs and commitment such actions involve. Legal fees can run in the hundreds of thousands of dollars.
Ebert said because their attorney wouldn't take the case on a contingency basis, his father paid about $215,000 in legal fees out of his pocket during the process. The amount of time suits can involve over the years can be staggering. And if you have any skeletons in your closet, an insurer you're suing will absolutely discover them, Coccaro said.
On the upside, a suit can improve claims practices in your market or bolster the resolve of other shop owners to take a stand. It can result in financial compensation, vindication and feeling of more control over your own business.
"In my case, it has never been about money," Coccaro says. "In my situation it was something I felt I had no choice and I had to pursue it."
An alternative to court
There are a number of ways to resolve disputes with insurers without lawyering up, said Mike Anderson, an industry consultant and shop owner. Anderson recommends starting with the path of least resistance and friction, which is a civilized discussion. Rather than asking your shop's estimators to explain one of your shop's charges every time, for example, sit down with a decision-maker at the insurer to explain why a process is needed and why his shop should paid for it.
"In addition to being the least confrontational route, it also develops credibility for you," Anderson says. "Once you've proven your case, you gain trust. And as you gain trust, it makes future discussions and negotiations much easier."
Anderson cited several examples of tools shops can use to help explain necessary procedures and charges. Wisconsin shop owner Aaron Marshall, for example, was tired of insurance adjusters saying it wouldn't be necessary to blend a door when repairing a dent on an adjacent fender. Using information from his paint vendor, Marshall built a simple tool that showed the minimum amount of space from a repaired area that would need to be feathered back and primed, and how much distance from that area would be required to blend a light or dark metallic.
"It helped take the opinion out of what's actually a factual discussion," Anderson says.
He also recommends turning to the Database Enhancement Gateway (DEG) when an insurer is misinterpreting what is or isn't included in an estimating database time. The DEG Web site (www.degweb.com) offers a quick way for anyone in the industry to submit a question or concern about an estimating database-related question and get a response – often within a couple days – from the database provider.
Anderson admits there are downsides to the educate-rather-than-alienate approach. It can be time-consuming, lead to delays that hurt cycle time and cash flow, and may require being able to develop a spreadsheet, presentation or video that bolsters your argument.
"And it can wear on your patience," Anderson says. "About the time you have someone trained and understanding what you charge for, they move on and someone else comes in. It can be frustrating. However, once you convince somebody that what you want to charge for has credibility, it can return big dividends."
