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Ind. insurer lobbyist presents amendment suggesting alternative ‘industry standards’ as good as OEM procedures

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Associations | Insurance | Legal | Repair Operations

Calling it a means of protecting collision repairers, Insurance Institute of Indiana and State Farm lobbyist Jon Zarich last week presented an amendment eliminating insurer adherence to estimating systems and suggesting alternate “industry standards” were just as good as OEM procedures.

The amendment to Senate Bill 164, supported as well by the Property Casualty Insurers Association of America, was passed 12-0 by the House Insurance Committee shortly after Zarich’s testimony Feb. 21. It could go to the House floor as early as Tuesday, according to a collision repair trade group.

Not realizing how far the amendment had led Senate Bill 124 astray, the Indiana Auto Body Association endorsed the bill at the Feb. 21 committee hearing but now strongly opposes it, IABA President Doug Martin said Monday.

The bill was first sponsored in the House by committee Chairman Rep. Martin Carbaugh, R-Fort Wayne, and Rep. Matt Lehman, R-Berne, though it’s unclear which legislator actually formally introduced the amendment language before the committee. Phone messages for bill sponsor Senate Majority Whip Mark Messmer, R-Jasper, and Carbaugh have not yet been returned.

The proposed amendment to Senate Bill 164 changes “deceptive act” law to read:

(c) The following apply to an action brought under this chapter concerning a deceptive act described in this section:

(1) The action may be brought only on behalf of an individual.

(2) The action must not be brought on behalf of a group or class of plaintiffs.

(3) It is a rebuttable presumption that a repair of a motor vehicle is not defective if the repair is made in conformity with:

(A) the vehicle manufacturer’s repair procedures; or

(B) generally accepted industry standards.

Cars are changing, but you don’t have to?

Zarich presented the amendment to the committee, and his argument for it ironically made the case for why picking “industry standards” over OEM repair procedures was so dangerous by highlighting the speed at which vehicle technology evolves.

As anyone who’s bought a new car knows, “they’re changing quickly,” he told the committee. Yet it should be acceptable for repairers to use older industry standards on them, he then argued — and it would be up to a consumer, not the repairer or Zarich’s insurers, to prove those standards were as good the instructions set out — and updated frequently — by the automakers who built the new technology.

“In no way are we saying that the repair shop wouldn’t have liability here,” Zarich said. “But what we are saying in this is that if they follow these industry standards or these Honda recommendations, that the plaintiff would have to show these aren’t adequate. And they can still do that. But what we’re trying to do is as these vehicles change and these technology changes, to give the repair shop that benefit, to say … ‘This is how we (were) repairing vehicles and we have a rebuttable presumption.”

This is an ridiculous proposition, which lets everyone from hack shops to merely misguided ones to do whatever they want and force the consumer to prove it was a bad repair.

Zarich said repairers had expressed fear among repairers of “class actions” coming out of Texas — which is ironic given infamous John Eagle Collision Center plaintiff’s attorney Todd Tracy’s view that class actions aren’t the best tactic — and said he was trying to alleviate that.

“You have an auto manufacturer who has their recommended procedures on how to repair a vehicle, and you also have industry standards, which is also a function that a repair shop would choose to use,” Zarich said. He gave the example of estimating systems describing to follow a particular procedure to replace a fender, even though estimating systems are third-party compilations of OEM repair procedures.

But the point Zarich appears to really be making is the ones John Eagle body shop director Boyce Willis unsuccessfully tried. Willis suggested a shop should be able to repair a Honda like an Aston Martin, and insisted that Honda’s wrong and “bonding is better than welding” based on the “market” and “process” and said his facility began gluing roofs on the advice of a supervisor without any formal engineering, metallurgical, or structural analysis training.

According to Zarich, the OEM repair procedures and industry standard often “kind of meld together with a best recommended practice.”

“But in the meantime, what some of the litigation has been doing is to say, ‘Well if you’re not using the Honda’s recommended repair procedure, then it’s not adequate repair,'” he continued.  “… ‘You’re using an industry standard but maybe that’s not the best.’ And our belief is … we want to get the vehicle on the roadway in a safe manner, that’s the job we have to do, but there’s more than one way to do it.”

Following either manufacturer or “industry standards” would be “satisfactory” under the law, he said.

Industry standards should prevent a class-action lawsuit, for “you are still completing an adequate repair as the repair shop. You’re following … standards that have been in place and what the industry’s been using,” according to Zarich.

By that logic, is a shop who continues to use plug welds instead of the spot welds General Motors wants more frequently from now on doing a bang-up job?

Let’s say such a deviation from OEM repair procedures were found in a post-repair inspection. Under the amended Senate Bill 164, it would be up to the customer to prove the shop had deceived them about the repair quality, rather than on the shop to prove that deviating from OEM procedures was right.

Note that while we referenced the John Eagle case, the amended version of SB 164 doesn’t appear to protect a shop from the liability of work that allegedly killed or injured someone. It seems to merely head off a claim for misleading the customer. “Deceptive acts” under the Indiana law affected by the bill refers to a supplier misrepresenting something; for example, a repair a shop represented as high-quality but knew or should have known was bad.

Ironically, Indiana law already says: “It shall be a defense to any action brought under this chapter that the representation constituting an alleged deceptive act was one made in good faith by the supplier without knowledge of its falsity and in reliance upon the oral or written representations of the manufacturer, the person from whom the supplier acquired the product, any testing organization, or any other person provided that the source thereof is disclosed to the consumer.”

The concept of “generally accepted industry standards” which aren’t OEM repair procedures is absurd anyway. I-CAR and all three major national collision repair trade groups have declared OEM repair procedures to be the standard of care.

Some insurers, however, won’t concede that point. Given that industry’s support for the amended SB 164, one wonders if a true goal of the revision is to provide an argument for insurers seeking to persuade shops to deliver untested but lower-cost repairs, rather than more expensive ones dictated by OEM instructions. (“Go ahead and repair that replace-only part. Industry standard says it can be fixed, and Indiana law says you’ll be OK.”)

If OEM repair procedures weren’t the benchmark, how would a customer or shop even know what the standards for a 33,500-shop industry would be? To steal a joke from Jake Rodenroth of Collision Diagnostic Services, who’s got the stone tablets containing the industry standards? If you have them, please make a copy and send it to Indiana; your colleagues and consumers there might need it.

Does an incorrect majority set ‘industry standards’?

Trying to derive some standards outside of the OEM benchmark could lead to frightening results. Evidence from GM and I-CAR suggests that many repairers in this industry might be fixing cars incorrectly, whether out of incompetence, greed, or unfamiliarity about technology changes.

If the number of shops so misguided is in fact the majority, does that create an “industry standard” for such incorrect work that the consumer would have the burden of proof to rebut — even thought the OEM procedures written and tested by the company that built the car are clear?

Take one of the industry’s most embarrassing recent moments: the realization in 2016 that shops should have been running diagnostic tests on vehicles for years, even decades.

Many shops weren’t scanning cars, and many still aren’t. CCC research in 2017 found that despite 68.1 percent of vehicles on the road requiring scanning per OEM position statements, only 1.55 percent of appraisals showed a charge for the work. Unless the other 67.55 percent of shops are simply doing the work gratis, industry standard here is very likely wrong.

Removing a check on insurers

Zarich also told the committee that the “rebuttable presumption” language was an adequate substitute for a clause barring insurers from disregarding repair operations in estimating systems — which was deleted under the amendment passed Feb. 21

Zarich said that the new section “gets at the heart of the matter, that’s what’s going on here is with parts choice and vehicle repair procedures.”

But that doesn’t appear to tell the whole story.

The new language banning class-action suits and shop protection for “industry standards” relates to law surrounding “deceptive acts” in consumer sales — rules which don’t appear to apply at all to auto insurers. According to Indiana Code 24-5-0.5, which would receive the new language:

Consumer transaction” means a sale, lease, assignment, award by chance, or other disposition of an item of personal property, real property, a service, or an intangible, except securities and policies or contracts of insurance issued by corporations authorized to transact an insurance business under the laws of the state of Indiana, with or without an extension of credit, to a person for purposes that are primarily personal, familial, charitable, agricultural, or household, or a solicitation to supply any of these things. 

The deleted “repair operations,” however, would have made it an unfair claims settlement practice for an insurer to “Unilaterally and arbitrarily disregard a repair operation or cost identified by an estimating system the use of which has been agreed to by the insurer and the repair shop for determining the cost of the repair.”

This is kind of ironic, for Messmer said a constituent repairer’s difficulty getting reimbursed for proper repairs was part of the impetus for the bill in the first place.

Tom and Ed’s Auto Body Repair Services general manager and IABA board member Andy Tylka noted during the hearing that he disagreed with the Senate-passed bill’s language declaring it an unfair claims action for an insurer to disregard an estimating service. Information provider software “doesn’t talk about procedures,” merely how long various repairs take, Tylka said. He said that insurers should be bound to OEM repair instructions instead.

Carbaugh told him such language was in the amended bill, which obviously doesn’t seem to have ended up being the case.

Reached Monday, Tylka said he opposed the bill and didn’t realize the content of the new amendment on the table that day when he gave Senate Bill 164 his blessing Feb. 21. He called the notion of “industry standards” “way too vague,” and OEM repair procedures “the measure for proper repair” and to determine shop liability.

Be heard: Indiana legislator contact information can be found here.

Images:

Insurance Institute of Indiana and State Farm lobbyist Jon Zarich speaks during an Indiana Senate Insurance and Financial Institutions hearing on Jan. 11, 2018. (Screenshot from Indiana Legislature video)

Indiana Auto Body Association President Doug Martin (Martin’s Body Shop) testifies in support of Senate Bill 164 on Feb. 21, 2018, unaware that the amendment before the House Insurance Committee gutted and distorted the bill. (Provided by Indiana Legislature)

Insurance Institute of Indiana and State Farm lobbyist Jon Zarich testifies in support of Senate Bill 164 on Feb. 21, 2018, before the House Insurance Committee. He presented a amendment which gutted and distorted the bill, leading to the Indiana Auto Body Association yanking its support. (Provided by Indiana Legislature)

“I think the industry is stepping up,” I-CAR CEO John Van Alstyne said in January as I-CAR announced large increases in the percentage of shops training and holding continuing education requirements. But 58 percent of the industry still lacks the latter. (Provided by I-CAR)

Insurers and collision repair experts from MSOs participate Aug. 11, 2016, in a NACE panel on scanning. (John Huetter/Repairer Driven News)