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California collision industry reacts to proposed regulations on storage fees

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Collision Repair | Insurance | Legal
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California Bureau of Automotive Repair (BAR) recently fielded more than two hours of comments about proposed regulations on storage and towing fees that could significantly change the way collision repair shops operate in the state. 

The passage of AB1263 last year gave BAR the authority to address storage fees, according to BAR documents. It also allows the bureau to codify its guidance and unify existing law on the subject. 

Those in attendance raised concerns about the regulations requiring them to set a storage rate annually, with no ability to change it during the year for unforeseen circumstances. Concerns also included but were not limited to criteria outlined to set storage rates, the inability to charge storage rates while a vehicle is in the process of repairs and the state creating an “average storage rate.” 

“I understand why they are doing this because there are cowboys out there doing whatever they want,” Andrew Batenhorst, California Autobody Association Glendale/Foothill Chapter president and Pacific BMW Collision Center body shop manager, told Repairer Driven News Thursday. “On the flip side of that, there are repairers like me who follow all these rules and we are still being punished and the customer is being punished.”

Comments came during a workshop held July 18. It was the second of two workshops BAR has held on the proposed regulatory language. 

Bureau Chief Patrick Dorais said once a final package is completed on the regulations it will be sent to the director of the Department of Consumer Affairs for approval. If approved there, it will be filed with the Office of Administrative Law. A 45-day public comment period would be held by that office, he said. 

After the public comment period, BAR would file the proposed regulation with supporting documents. He said the entire process could take another year. 

“Right now, we are still in the developmental stage very early on in this process,” Dorais said. “So this [workshop] is designed to solicit input from everyone and help us make the best product possible going forward.” 

The proposed regulation will require Automotive Repair Dealers (ARD) that charge storage fees resulting from an accident or theft recovery to report their daily storage rate to BAR for the renewal period of the ARD registration, according to BAR documents. It should remain unchanged during that period. 

A business owner attending the meeting called the timeline “unreasonable.” 

“Things change in 12 months,” the business owner said. “My insurance rates, my rent, my labor rates, and so forth.” 

Ron Auernig, owner of Auernig Auto Body in Roseville, said it is extremely difficult to forecast his business expenses a year in advance. He said, for example, California raised the hourly labor rate for fast food workers to $20 an hour. 

In an attempt not to lose entry-level employees, Auernig said he had to raise several employees’ wages at his shop. 

“I have to scramble to make up some of this money now and keep my doors open,” Auernig said. “Storage is one place that maybe I could do that but not if I have to wait 12 months.” 

A BAR official said that it may be possible to change that requirement in the regulations. 

“Maybe we can look at this and build something that is a little more flexible,” the official said. 

Erica Williams, Williams Insurance Exchange and counsel for California State Automobile Association Insurance (CSAA) Group, said most costs can be projected year by year with inflation. She said the state could add an option for rates to be changed due to an economic catastrophe or an exception for financial duress. 

“That is more concrete rather than leaving it open-ended,” Williams said. 

Jack Molodanof, counsel for California Autobody Association, raised concerns about the regulations requiring storage fees to be based on certain factors, rather than suggesting factors it could be based on. 

“I think these are good ideas but this implies that they have to do this; it’s a ‘shall,’ Molodanof said. “There are other ways to determine what you should charge for your storage rate.” 

The  proposed regulations say ARD shall determine the rate based upon the following factors: 

    • The value of the storage space as determined by revenue potential of that space absent the stored vehicle;
    • Whether the storage area is inside an enclosed building, in a secure outdoor parking area, or at a separate secured location;
    • Labor costs for staff to ensure the safekeeping of vehicles;
    • Operating costs such as supplies, utilities, payroll, and other expenses that contribute to the value of the storage area; and
    • Any other actual and direct costs associated with the storage of the vehicle.

Molodanof said it’s possible a new shop opening would call six to seven other shops in their area to help determine their rates but, per the wording of the regulation, that might not be a sufficient way to establish a rate. 

“What’s wrong with that, if that’s the market? I think the shop should be able to do that and I think the factors are good ideas but I don’t think they should be required,” Molodanof said. “I think there should be a ‘may.'” 

He said it seems, by the regulation, BAR could come to a shop and demand they provide proof of how they came up with the rate based on the factors listed in the regulation. 

Molodanof also said there are concerns about BAR posting an “average storage rate.” 

Language in the regulation requires BAR to post average daily storage rates for a given locale and create a search tool that can be used by third-party payers and consumers. 

Locale is defined as the 10 geographically closest ARDs performing the same type of repairs and reporting daily storage rates. The maximum radius shall be 10 miles. 

“The search tool is not intended to regulate, establish, or otherwise influence actual storage rates and is a reference tool only,” the proposed regulation says. 

Molodanof said California code doesn’t refer to an average storage rate but talks about rates being reasonable or unreasonable. 

Molodanof said, “If someone charges more than the average, is that considered unreasonable?” 

He later added, “This average daily storage rate is problematic.”

Gary Hernandez, owner of Martinez Auto Body in Martinez, said it is difficult to place an average on storage rates. 

“If you’re below the average nobody says anything to you, if you’re above the average, you’re above the average you need to come to the average,” Hernandez said. “What does that do? It lowers the average basic economics. It is working against a business.”

Hernandez said the economics of his business are different than a towing and storage business. 

“My facility is paid on a square foot basis,” Hernandez said. “The storage area is not a place that I want to have but it’s a place that I need to keep because if I have an excess amount of work or if something has come in waiting for parts.” 

He said his shop is a block off Main Street. It is zoned residential and approved for a six-plex. He said using the property for a six-plex would make him more money. 

“But if I put a six-plex on it, I can’t stay in business the economics of my business are so so much different than what you’re talking about,” Hernandez said. 

Molodanof said another concern is language in the proposed regulation that says storage fees with no repair transaction should charge storage rates similar to ones used when responding to a public agency similar to the California Highway Patrol (CIP) or a local police department. 

“Is there any way we can clarify what you mean by repair? Because it just seems like the car has to get repaired and it may not get repaired but there’s work done — there’s service,” Molodanof said, referring to possible teardown or estimating procedures completed on the vehicle. 

Williams also said the section needs clarity. 

“That’s a gray area that’s going to have a lot of argument unless there’s crystal clear clarity on whether or not the daily storage rate can apply under the market rate or the CHP rate in this context,” Williams said. “How much needs to be done before it crosses the line to be an ARD market.” 

A BAR official responded that a teardown and assembly estimate would be determined as a repair but not a visual estimate. 

“It should be clear from reading the definition of repairs and how this is applied,” Williams said. 

Molodanof also said he thinks the regulation should mention that storage rates are held to the standards of the state’s Fair Claims Settlement Practice regulations, which regulate insurance companies’ actions regarding storage rates. 

Batenhorst also commented during the meeting that he felt there should be more involvement from the state’s Department of Insurance. 

“Why is no one from the Department of Insurance participating in these discussions as they are involved in how this outcome is for the end person which is the consumer? What BAR does not see is that many insurers don’t really care if we are acting reasonable in our market and they will punish the customer and withdraw the excess charges from the customer’s total settlement even though there are regulations by the CDI that that prevent them from doing so.” 

Tim Ronak, AkzoNobel senior services consultant, said he had concerns about language in the proposed regulation that says storage fees can’t be assessed while a vehicle is undergoing repairs. 

He said collision repair facilities often struggle to receive timely approval for repairs from third-party payers or consumers working with third-party payers. 

BAR should take into consideration when a change order or supplement request is made during the repair process, he said. 

“If they found some additional repair needed as part of a repair plan or strategic disassembly that response shouldn’t be 15 days where the car sits idle,” Ronak said. “That car sitting for 15 days rather than just a quick three-day window creates a burden on that shop to be able to provide and not use that space for their targeted activity, which is repairing vehicles.” 

Ronak said vehicles sitting during a repair process need specialized care. They can’t sit on the outside lot, he said. They need to be protected from additional damage. 

A BAR official responded that it does not allow storage rate fees while the vehicle is involved in a repair. It also said it is ultimately the customer’s decision to decide in a timely fashion, not the third-party payer. 

During the meeting, Williams said regulations on storage fees are important because of a rise in fraudulent insurance claims. 

“Shops having a right to earn a profit that’s not the issue, it’s just we live in a world today that’s full of insurance fraud,” Williams said. 

She mentions a PCI article that talks about specific abuse regarding towing and storage practices. 

“Currently in the nation, the attributed amount to abusive billing for storage and towing is about half a billion dollars, or $500 million,” Williams said. “It’s being raised in the insurance fraud worlds.” 

Auernig responded to Williams’s claims. 

“There’s certainly shops out there that do that,” Auernig said. “I understand that and I say go get them. I have to compete with those clowns, but insurance fraud works both.” 

He said it’s not uncommon for an insurance company to call saying that his storage costs are too high or making claims about storage laws that are untrue. 

“Fortunately, I’ve learned the rules and hold firm to that and can answer them back,” Auernig said. 

He added that excessive storage days and bills can come when an insurance company drops the ball. 

“It happens a lot,” Auernig said. “I’d encourage you right now to pick up the phone and try to call somebody at CSAA and see if they answer the phone or if you get a hold of a live person at that company. It is extremely difficult. Cars tend to get left way too long in spite of our continuous phone calls. We don’t want to be a storage facility.” 

Batenhorst also said Thursday that insurance companies can play a part in why storage rates are rising. He said long approval processes can cause lengthy storage times.

“That is the challenge we face and I think a lot of the other people in that room share the same frustrations as I do,” Batenhorst said. “The overall feeling is that there is a lot of helplessness. It was tense. There was anger, and not just from us. There was a lot of frustration from the insurance people in the room but it started to feel like a David versus Goliath situation. I don’t like that.”

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Photo courtesy of LordRunar/iStock

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