The government of the Australian state of New South Wales announced Dec. 22 that it would back part or all of 18 of 21 recommendations made…
All sides — insurers and collision repairers — of the debate over proposed California auto claims regulations appear to be waiting for a potentially crucial state Supreme Court decision on the scope of the insurance commissioner’s power.
Association of California Insurance Companies v. Jones, won by the local PCI branch at the state appellate level in 2015, was unanimously chosen for review by the state Supreme Court.
A decision seems possible soon, based on comments at a California Senate joint committee hearing Wednesday on the Department of Insurance’s regulatory bounds.
Though involving a homeowner’s insurance-related regulation, ACIC v. Jones could set a precedent for how far the insurance commissioner may go in interpreting state laws to deliver a “fair” result. A coalition of insurers (and the California Chamber of Commerce, some member shops might wish to note) have argued as much in two letters regarding the DOI’s steering and auto body labor rate survey proposals.
The ACIC case involves Republican Commissioner Steve Poizner’s mandate that insurers estimating true rebuilding costs — local fees, market conditions, and the like — when quoting customers homeowner’s insurance premiums to avoid misleading policyholders.
According to Democratic Commissioner Dave Jones — “I ended up being the commissioner sued,” he told the joint committee Wednesday — a “substantial” amount of Californians found themselves too underinsured to rebuild following wildfires in the San Diego, Los Angeles and Oakland areas.
Jones said there was no mandate in the regulation that insurers provide an estimate, merely that those who did conduct it consistently and taking more costs into account.
“I think it’s providing considerable benefit,” Jones said, noting that the homeowner’s regulation still is in effect pending the Supreme Court’s decision.
The idea of standardizing or dictating how insurers do a practice — not whether they must do one — is at the heart of Jones’ solution to complaints regarding insurers’ handling of auto body labor rates.
Jones has proposed a regulation which would create a template for insurers who chose to do auto body labor rate surveys, and it would also precisely define the nebulous terms debated by insurers and shops.
These include geography of market areas (the six nearest shops, including the shop itself), who counts as a surveyable body shop (BAR-licensed and with the right equipment), which rates can be used, how current the survey data must be (28 months, max) and how to calculate the market rate itself (higher of mean or whatever shop has a rate “at or below which a simple majority of surveyed shops charge”).
“It’s pretty clear that it would take away the commissioner’s authority,” California Autobody Association Executive Director Dave McClune said Thursday, referring to a situation in which the Supreme Court upholds the ACIC case.
However, aside from that concern, McClune and association lobbyist Jack Molodanof expressed happiness with the DOI’s public hearings last week on the labor rate survey and steering regulations.
McClune said his group did propose another labor rate survey category which would account for luxury and sports cars, but otherwise “we basically agree” with the DOI’s plan on surveying labor rates. Jones’ plan merely distinguishes between steel and aluminum rates.
ACIC v. Jones
The 2nd District California Appeals court in ACIC found that unilaterally dictating a single estimating format necessary to avoid misleading consumers — protecting customers from deception is a general power of the commissioner — implies that all other formats were misleading. If the Legislature wanted to specify that an incomplete estimate was an unfair practice, it would have, the court ruled.
“The Legislature could have gone on to define the content and format of replacement cost estimates. It could have added incomplete replacement cost estimates to the list of unfair and deceptive practices in the UIPA. We infer that these omissions were deliberate, and that under the guise of ‘filling in the details,’ the Commissioner therefore could not do what the Legislature has chosen not to do.”
The court also noted that the commissioner simply hadn’t been given the kind of broader power that other state agencies enjoy to develop its own regulations. However, it noted the commissioner could follow the normal process involving an Administrative Procedures Act-dictated hearing and still challenge misleading behavior. (The DOI had argued that this process applied to individual instances of wrongdoing and regulation was necessary to manage allegedly systemic issues.)
“By our opinion today, we are not suggesting that the Legislature could not regulate the form and content of replacement cost estimates if it chooses to do so,” the appeals court found. “We are also not suggesting that the Commissioner could not use the administrative and court processes in section 790.06 to seek a determination that replacement cost estimates not including certain information are unfair and deceptive. Nor are we limiting the Commissioner’s authority under section 790.05 to bring an enforcement action against a licensee who has lowballed or otherwise given an incomplete replacement cost estimate. Our ruling today is limited to one conclusion—that the UIPA has not as of yet given the Commissioner authority to regulate the content and format of replacement cost estimates.”
The insurers conveyed a similar message: If you think one of us has an unfair rate survey, bust that insurer individually, but don’t issue a regulation that circumvents all of this. Instead, they argue that the regulation only demands that DOI serve as a clearinghouse for the survey data so it may be made public.
CIC government affairs outreach Vice President Armand Feliciano also questioned the DOI’s estimate of the cost of the surveys and paying more in labor during comments at the Senate hearing Thursday.
“We’re also concerned about the cost,” he said.
The state expects insurers to pay $1.15 million more to body shops and a $20,000 administrative fee for the surveys in at least the first year. Some or all of that $20,000 administrative cost difference should fall in the years when insurers can adjust their findings by the California inflation rate rather than try a new study. (If deflation occurs, insurers can’t lower the rates.)
“We think it’s much larger than that,” he said.
At this point, the cost per premium is about 6 cents.
Jones reports that his office has “hundreds” of complaints regarding insurer surveys. He also notes that the inconsistent format makes it difficult to make that information more easily available to the public.
“The Department received hundreds of complaints from consumers and auto body repair shops, alleging specific instances where consumers were forced to pay out-of-pocket costs, or shops were deprived of their reasonably charged rates due to outdated and unreliable surveys,” the agency wrote. “For example, some insurers’ labor rate surveys relied on artificially large geographic areas or outdated survey data that did not reflect the market rate. …
“Currently, the various insurers determine a geographic area in several ways, including but not limited to United States 16 Postal Service (USPS) Zip Code areas, city, counties, multiple counties, and some highly irregular and customized “markets” or “zones” which the insurer creates. The Department’s experience is that some of the geographic areas used by insurers in surveys result in artificially inaccurate, unreliable, and unreasonably low labor rates that are not representative of the market. For example, in one instance, an insurer used its insurance adjusters’ territories as the geographic areas for its labor rate survey, which may have been convenient for the insurer, but which also had no relationship to the actual market areas where shops were located. The result is a significant range in labor rates used by insurers for the same insured, claimant, or repair shop. A claimant should not be paid significantly differently depending on which insurance company is paying the claim. In order to achieve greater consistency and reliability in the Standardized Labor Rate Survey, the Department finds it necessary to define geographic area.”
As for steering, the insurers take the same ground, though in this case it seems a little shakier.
“Furthermore, in our view, the proposed amendments to subdivision (e) of section 2695.8 is in conflict with the first amendment right to free speech under the United States Constitution and California Constitution (Cal. Const. art.1, Section 2 (a),” the insurance groups wrote. “Insurers have the right to freely communicate with their policyholders. We do not believe the Department’s proposed regulation requiring an insurer to have a ‘clear documentation in the claim file’ before we can say anything is consistent with our constitutional rights. We are not aware of any case law that would indicate that what the Department is proposing passes constitutional muster; and therefore, must be stricken.”
That seems like an invalid First Amendment argument, as the department is prohibiting insurers from disparaging another shop without documentation. There’s nothing that says they can’t talk up their own shops, merely that they can’t insinuate or say a non-DRP shop does X if they don’t have an example of X in the claim file. (To be fair, the insurers also questioned how much documentation would be needed to pass muster, a seemingly crucial crucial detail isn’t included in the regulation.)
They also acknowledge that the DOI has the power to implement regulations for part of the antisteering law — just not under the grounds Jones’ agency specified. But an antisteering rule in the state insurance code indicates:
“An insurer may provide the claimant with specific truthful and nondeceptive information regarding the services and benefits available to the claimant during the claims process. This may include, but is not limited to, information about the repair warranties offered, the type of replacement parts to be used, the anticipated time to repair the damaged vehicle, and the quality of the workmanship available to the claimant.”
Which seems like a pretty clear-cut rule, and Jones’ method for ensuring “truth” through documentation seems as though it would accomplish as much.
The steering rules might fare better than the labor rate survey rules should the Supreme Court back the ACIC.
But if not, it seems that shops here might need to look at the Legislature or individual, case-by-case DOI actions — to address their needs.
The other threat to the regulations might come from the Office of Administrative Law, another form of oversight over various government agencies’ regulatory actions. The DOI must submit a version of its early March proposals to the OAL for review within a year.
In 2007, the OAL shot down an earlier version of a labor rate survey regulation on a variety of grounds, including a lack of indication of public need. (The new version is more specific in noting complaints.)
It also took Democratic Commissioner John Garamendi, who had since been replaced by Poizner, to task on the clearinghouse grounds noted by the insurers:
“Here the Department has taken a statute saying little more than ‘if an insurer does a survey, it must report the results to the Department’ and produced an extensive and prescriptive set of requirements for what is permitted and what is required in a survey,” the OAL wrote.
However, McClune said Poizner “didn’t want to fight it,” and Jones thought this new version would past OAL muster. (It might help that Poizner was put in the position of being a Republican defending a Democrat’s regulation against a Republican administration, while Jones, a Democrat, would be submitting his own regulation to Democratic Gov. Jerry Brown’s administration.)
“We’re not too worried about it,” McClune said.
OAL, Jan. 5, 2007
Second District California Court of Appeals, April 8, 2015
Via National Association of Mutual Insurance Companies April 25, 2016
NAMIC, April 22, 2016