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Pennsylvania judge: No single labor rate ‘fair and reasonable’

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Collision Repair | Legal
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A Pennsylvania judge’s ruling in a third-party claim dispute settled in favor of a collision shop serves to weigh in on disagreements between repairers and insurers on labor rates.

On behalf of its customer, Karl Schreiter Jr., Crawford’s Auto Center took Nationwide Mutual Insurance Co. policyholder Billy Ray Hamilton to court in 2020 because the carrier paid just over half of the repair bill. It was later proven during the trial, according to Chester County Court of Common Pleas Judge Bret M. Binder’s opinion, that the damage was caused by Hamilton and Crawford’s was owed the outstanding balance.

At issue was the labor rate charged by Crawford’s and the validity of Schreiter’s assignment of proceeds as well as the repair contract.

Similar to assignment of benefits (AOB), in Pennsylvania assignment of proceeds means shop customers agree to allow the shop to take their claim to court if they don’t receive adequate payment.

“This court agrees that the rates charged by Plaintiff were also reasonable and fair market rates,” Binder wrote. “Much as there is a range of rates charged by various professionals from plumbers to electricians to attorneys, no single rate is dispositive or the sole fair and reasonable rate that the market will bear. There is, of course, some upper limit to the amount that may be charged per hour by an auto body shop and still be reasonable; however, here the repairs were done competently, at a fair market price, and all parties agree the repairs were required.”

Steve Behrndt, owner of Crawford’s, told Repairer Driven News Binder nailed the crux of the issue, not only in the Schreiter case but for the industry as a whole when it comes to labor rate disputes.

“You can’t become any clearer to have a judge understand the situation,” he said. “If all the shops sued an insurance company tomorrow, we’d solve this problem overnight.

“If you’re going to run a business properly then you have to find ways to protect your customer – follow the repair procedure recommendations and get paid doing all this. And that’s why I made my decision years ago that I’m going to have to litigate to do this if I have to or I’m going to have to find a way to get paid.”

Andrew Eckert, attorney for Crawford’s, argued that “despite repeated demand” Nationwide failed to pay the outstanding balance of $6,280.29 for the $13,462.56 repair bill.

“We have filed other cases like this one; a handful of cases in a couple of different counties,” Eckert told Repairer Driven News. “This one was the first one that actually went to trial. Most of them resolve at or before the arbitration level.”

In response to the complaint, Hamilton’s attorney denied their client was at fault for the collision and neither confirmed nor denied that Schreiter was involved in the same collision. They also stated that Hamilton wasn’t a party to the repair contract agreed to by Schreiter.

Hamilton disagreed with owing money for the repairs, and denied that he was obligated to pay anything above what was paid by Nationwide on his behalf, according to the answer to the complaint. Hamilton’s attorney also argued that the complaint fails to state a cause of action.

“The hourly rate charged by Plaintiff for all of the work performed… was in excess of the reasonable and customary hourly rate, which is charged in Chester County, by businesses which provide the same services,” the answer to the complaint states. “The hourly rate charged by Plaintiff for its services was not the reasonable and customary hourly rate charged by businesses in Chester County, PA., for the same services and was unreasonable and excessive.”

In court, a Nationwide appraiser testified that he calculated his estimate on the claim using software provided by Nationwide, which included two labor rates — $52 an hour for body, refinishing and mechanical labor and above $56 an hour for frame labor. Those rates, he said, had been accepted by other shops in the same market as Crawford’s, although he didn’t list any by name. He didn’t provide any evidence on how those rates were determined. He also couldn’t recall if the posted rates in those shops were higher to answer whether or not the non-DRP body shops were accepting a reduced rate from Nationwide.

“I believe I have a right to be paid and I cannot operate a repair facility working for a $52 or $56 or $50 labor rate,” Behrndt told RDN. “It’s impossible for me to attract competent technicians and pay them properly and I’ve got to get the money from somewhere. My labor rate currently is at $95 and $105.

Binder wrote in his opinion that, “a third-party beneficiary has the right to enforce a contract but this court is skeptical that a corollary exists by which a third-party burdened by a contract can challenge the validity of that contract.”

“This language is set forth in a clear and easy to understand language that Mr. Schreiter assigned all rights he held to secure payment for the cost of repairs to the Vehicle including, explicitly, the right to prosecute any action. Moreover, presumably in anticipation of any issues, Mr. Schreiter agreed: ‘To the extent it may be necessary, [Schreiter] agrees to assist in the recovery of [Plaintiff’s] outstanding amounts/invoices, including executing necessary documents and to appear and testify in any court proceeding/hearing. [Schreiter] further agrees he/she will not object to any joinder as a necessary party in a lawsuit, pursuant to Pa.R.Civ.P. 2227.'”

Behrendt testified that his hourly rates of $85 for body labor and refinishing and $95 an hour for mechanical and frame labor were based on his knowledge of the industry, having been in the auto body repair shop business for 50 years and as the third-generation owner of his family’s shop as well as the rule of thirds. The rule of thirds includes labor cost, overhead cost, and profit in equal thirds.

Behrendt also said he based his rates on a labor rate market survey conducted by the Pennsylvania Collision Trade Guild. The survey, at the time of the trial in 2022, showed that guild members charged, on average, $91 an hour.

“Defendant, understandably, wishes to pay as low a rate as possible,” Binder wrote. “However, Defendant has conceded liability for causing the damages to the Vehicle and the scope of repairs needed, and Mr. Schreiter had the right to choose Plaintiff as he has in the past in an arms-length transaction. Plaintiff performed the repairs and charged its customary and ordinary rates, which were reasonable. Plaintiff stands in the shoes of Mr. Schreiter pursuant to two valid assignments. Accordingly, Plaintiff is entitled to reimbursement for the full value of its work.”

Nationwide and Hamilton didn’t pursue an appeal and Nationwide paid the remaining balance. The case also resulted in payment to Crawford’s on a separate third-party claim case against Nationwide that was moving through court during the same time frame as the Schreiter case.

“The second one [case] was resolved, I think, because the insurance company said, ‘Hey, there’s no reason to waste our time when we’re more than likely going to get the exact same result because that case happened to be with the exact same judge,'” Eckert said. “There’s this sort of push and pull of if you walk into a shop and you write a check at $52 an hour for labor rate and they take it, is that them accepting it? Versus, if you walk into a shop and you write a check including $50 an hour for labor rate and you say, ‘This is all I’m going to write,’ and they take it, is that them accepting it, or is that all you’re willing to do?

“So, who is, in fact, setting the rate? Is it the appraiser or is it the body shop? And I think that’s where the push and pull was here. Obviously, Crawford’s was not willing to and I think a lot of shops are probably not willing to just accept that rate.”


Featured image credit: DNY59/iStock

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