Original manufacturer parts as a percentage of repair cost grew slightly in 2014 as did the total cost of the entire parts price tag, reflecting…
A Portland, Ore-area collision repairer sued GEICO Tuesday on Sherman Antitrust Act grounds, alleging the carrier is conspiring with its Auto Damage Xpress direct repair program auto body shops to fix prices and boycott the plaintiff.
Leif’s Auto Collision Centers v. GEICO is similar to litigation the auto body shop filed in 2014 against that insurer and many others as part of the multi-state litigation pitting dozens of shops nationwide against carriers on steering and antitrust grounds. Leif’s dropped many smaller carriers as defendants in 2015, but left GEICO and some of the other major players named in the case.
Middle District of Florida Judge Gregory Presnell closed the case in late 2015 after Leif’s failed to amend its initial lawsuit in response to an earlier dismissal without prejudice. However, Leif’s v. State Farm et al and similar cases dismissed by Presnell could be resurrected given the success by other states’ body shops in appealing Presnell’s rulings to the Eleventh Circuit.
GEICO has demanded $52,205.50 in attorney’s fees and at least another $10,000 in a supplement in that multi-insurer lawsuit, arguing that the plaintiffs knew the case wouldn’t survive a motion to dismiss: Presnell set GEICO’s request aside pending the outcome of the appeal.
Leif’s attorney Steven Olson said Wednesday “we haven’t made a decision” on what to do about the case consolidated with the others before Presnell. However, he said that the lawsuit against GEICO wouldn’t be redundant should Leif’s reopen the 2014 case.
“The allegations are different,” Olson said, calling it “a different type of conspiracy.”
Leif’s v. State Farm accuses insurers of collaborating between themselves to fix prices and boycott non-DRP shops, while Leif’s v. GEICO accuses the carrier of conspiring with DRP shops to fix prices and boycott Leif’s.
Leif’s v. GEICO
“This arrangement involves vertical agreements between GEICO and ARX partners and a hub-and-spoke horizontal agreement between ARX partners that they will adhere to GEICO’s terms,” the lawsuit states. “The ARX partners would not go along with GEICO’s terms under individual vertical agreements absent an understanding, and express assurances from GEICO including promises of enforcement, that other ARX partners reached the same agreement with GEICO.”
“The conspiracy has the effect of denying Leif’s access to GEICO’s guaranteed referrals and GEICO policyholders’ business.
“GEICO’s conduct harms both Leif’s, GEICO’s policyholders, and the market. GEICO is forcing Leif’s into an unacceptable choice of sacrificing quality in repairs for GEICO policyholders or not servicing GEICO customers because GEICO will steer them elsewhere. GEICO’s conduct harms its policyholders by denying them access to safer, more thorough services and meaningful choice between auto collision repair shops. Finally, the market is harmed because GEICO’s conduct suppresses competition to supply safe, thorough repair services.”
Leif’s said it is not a direct repair program shop but is being held to the same terms as one under threat of being disparaged by GEICO.
“Leif’s charges the average labor rate for the Portland, Oregon metropolitan statistical area and insists on performing electronic scans to ensure safe and complete collision repairs,” the lawsuit states. “GEICO has refused to reimburse Leif’s for labor costs that exceed the rates agreed to by its ARX partners. GEICO has also refused to reimburse Leif’s for pre- or post-repair electronic scans. GEICO steers its policyholders away from Leif’s because Leif’s (1) fairly pays its mechanics for their labor and (2) insists on performing pre- or post-repair scans, which are necessary to comply with manufacturer and industry standards and safely and thoroughly complete repairs. Leif’s is not an ARX partner, and GEICO has not provided Leif’s with resources provided to ARX partners, or offered policyholders the same benefits if they use Leif’s services. GEICO has also made numerous inaccurate representations about the quality of Leif’s services to its policyholders in an effort to drive policyholders to ARX partners that follow GEICO’s mandates. Because Leif’s refuses to follow GEICO’s mandates and perform incomplete and unsafe repairs, Leif’s suffers financial losses and other negative repercussions.”
Oregon is a shop-choice state, but the lawsuit argues that, “Once a policyholder has an accident, the policyholder is locked into its insurer for coverage, because the policyholder has no option to change insurers to cover the accident. Insurers such as GEICO exert substantial control over collision repairs made to GEICO-insured cars. It is thus proper to regard the market for repairing GEICO cars as a separate service market. … By steering GEICO policyholders’ away from Leif’s services for false reasons, GEICO’s practices make it more burdensome for policyholders to obtain information needed to evaluate and choose the type of collision repair services they would like to receive. The boycotting activity has adversely impacted, and will continue to adversely impact, consumer choice and the quality of collision repair services throughout the relevant geographic market.”
The lawsuit also accused GEICO of intentional interference with economic relations under Oregon law because of its alleged steering.
“GEICO has caused significant damage to Leif’s,” the suit states. “As a direct result of GEICO’s conduct, Leif’s has been unable to effectively market its services to GEICO policyholders who have been steered away from Leif’s and primed by GEICO to believe Leif’s offers inferior, over-priced repairs.”
Leif’s seeks at least $75,000 for the steering claim and triple damages for undetermined amounts on the other three Sherman Antitrust counts.
The lawsuit’s alleges specific GEICO behavior, including:
• “GEICO has auto damage adjusters on site at each ARX partner location and supplies the shops with GEICO desks and signs. GEICO wants ARX partners to look, feel, and act as if the shops are affiliated with GEICO. GEICO’s Auto Damage Manager … has told ARX partners that the shops must display GEICO signage and paraphernalia ‘[a]lmost to the point that the customer believes GEICO owns the place.'”
• “GEICO also expects ARX partners to answer to GEICO management for the quality, cost, and nature of repairs. (The manager) has gone so far as to tell ARX partners that when GEICO partners with a shop ‘that shop becomes an extension of [his] management responsibilities.’ In return, GEICO assures ARX partners that they will receive referrals of GEICO policyholders; or as (the manager) puts it, ARX partners will receive ‘consistent volume.'”
• “(The manager) has threatened to ‘just let cars go to the field’ instead of referring them to an ARX partner whose average labor hours were too high. Additionally, if an ARX partner requests to use additional parts, materials, or labor for a repair, GEICO tells the shop that it is the only shop doing so and threatens to strip the shop’s title as an ARX partner and remove it from the Guaranteed Repair Shop Program. GEICO assures each ARX member that GEICO has agreements with all other ARX members holding them to the same standards so that no ARX member is disadvantaged.”
• “GEICO will not reimburse any auto collision repair shops for more than the maximum labor rate charged by ARX partners. This labor rate is lower than the average labor rate charged for collision repairs in the Portland, Oregon metropolitan statistical area.”
• “GEICO also refuses to reimburse any auto collision repair shop for electronic scans before and after collision repairs. These scans use software to test for diagnostic trouble codes that identify potential damage and help ensure a safe and complete repair. In cars with advanced driver assistance systems, electronic scans ensure proper calibration after repairs. The scans cost roughly $100.00. In 2016, Nissan, Honda, Toyota, and General Motors, among other manufacturers, issued public statements requiring or recommending that auto collision repair shops use electronic scans before and after repairing cars. The Automotive Service Association, an independent organization dedicated to advancing the automotive repair industry, also released a public statement endorsing electronic system scanning. But even after these public statements, GEICO has maintained a policy that it will not reimburse for pre- or post-repair scans unless a manufacturer issues an official document requiring scans for the particular make, model, and year of the cars being repaired. No such official documents exist.”
GEICO attorneys and a spokesman had not yet returned a request for comment late Wednesday afternoon. However, the company pointed out in moving to dismiss Leif’s lawsuit against it and other insurers that “as alleged, the purported pricing conduct is efficiency-enhancing and lowers costs that are used to set premiums charged to consumers,” an argument which could potentially apply here.
“The anticompetitive effects element cannot be met by simply alleging a restraint – particularly when that restraint is merely lower prices,” GEICO’s attorneys wrote in 2015. “Instead, Plaintiff must allege how this purported restraint is anticompetitive; it has not. Low prices generally do not raise antitrust concerns but, instead, are precisely the type of conduct the antitrust laws are designed to promote.”
It’s also observed in another case: “That GEICO seeks the lowest cost for quality body repair services, and has enough expertise and market experience to seek favorable pricing, is no indication of conspiratorial conduct. It only indicates sound business practice, which is not actionable under any theory.”
As for the interference allegation, GEICO wrote in a motion to dismiss the 2014 case that it is within its rights to be involved in the shop-customer relationship.
“In such a scenario, Defendants have a financial interest in the relationship between their insured and Plaintiff,” GEICO’s attorneys wrote about a similar tortious interference claim then. “Thus, Plaintiff cannot sustain a claim for tortious interference based solely on improper purpose.” It cited Oregon case law that to meet the test of “improper means,” its actions “must be independently wrongful by reason of statutory or common law, and include ‘violence, threats, intimidation, deceit, misrepresentation, bribery, unfounded litigation, defamation and disparaging falsehood.’”
GEICO v. Leif’s
GEICO and Leif’s have had a rocky couple of years. As noted above, Leif’s lawsuit against GEICO in 2014 led to GEICO suing the shop for attorney’s fees on the grounds Leif’s and its counsel “acted in bad faith, vexatiously and wantonly.”
Earlier this year, GEICO sued the collision repairer in federal court alleging tortious interference with GEICO’s business and defamation.
“Defendants intentionally create an atmosphere of fear and intimidation that leads to adjusters’ inability to appropriately and adequately perform their work,” GEICO v. Leif’s Auto Collision Centers states. “For example, Hansen and/or other Leif’s employees routinely yell at adjusters and aggressively interrogate them with excessive questions about their personal lives and personal information. Hansen and/or other Leif’s employees routinely say to adjusters, with the purposes of instilling fear in the adjusters, that they know how to ‘find people.’ …
“On one occasion, a Leif’s employee who had gone to retrieve a vehicle for inspection by a GEICO adjuster intentionally sped up the car and then stopped only shortly before he reached the spot where the adjuster was standing.”
It also alleges that “When GEICO adjusters arrive at Leif’s automotive repair shop, (the owner) and/or Leif’s employees routinely obstruct the adjusters’ access to and inspection of the vehicles. One such means of obstruction has involved requiring adjusters to wait for excessive periods of time—up to multiple hours—for (the owner) or a Leif’s representative to facilitate or supervise the inspection. …
“Defendants have routinely forced GEICO’s adjusters to wander around Leif’s premises, which are approximately five acres in size, to find the cars the adjusters need to inspect. Defendants refuse to tell the adjusters where the cars are located among the hundreds of cars that may be on the premises at any given time.”
As for defamation, GEICO wrote that “Defendants routinely and falsely or misleadingly communicate to customers that repairs to their vehicles have been delayed solely as a result of GEICO adjusters’ inspection schedules or decision not to inspect a vehicle on a particular day, when in reality Leif’s representatives have obstructed, delayed, and/or disrupted inspections when GEICO’s adjusters have been ready, willing, and present to conduct the inspections.”
GEICO claims Leif’s “falsely or misleadingly communicate to customers that GEICO is summarily refusing to pay for repairs on their vehicles when in fact GEICO has only refused to pay for excessive time to repair vehicles or unnecessary repairs.” It also alleges Leif’s holds cars “‘hostage’ … until GEICO agrees to pay egregious estimates for the work”
Given that Leif’s has accused the shop of refusing to pay the Portland market rate and for necessary operations like scanning — and the shop is the repair expert, not the insurer — the two cases ought to make for an interesting federal determination on this fundamental dispute between shops and insurer.
A legitimate market survey, expert witnesses and OEM repair procedures should help decide which side is overreaching. Based on some recent federal rulings on the other side of the country, GEICO might have a harder sell than when it filed the case in January.
In addition to lost profits and damages, GEICO seeks to circumvent Oregon’s shop choice law and “no longer conduct commercial activity with Defendants,” which presumably means it doesn’t have to allow its policyholders to patronize Leif’s.
Leif’s has denied GEICO’s allegations and filed a number of potential affirmative defenses, including “unclean hands,” truth and qualified privilege.
Featured image: A GEICO van is seen Oct. 16, 2011, at the Houston Air Show at Ellington International Airport. (Lanie/iStock)