Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Auto insurers alleged to have suppressed repairs costs paid to body shops, (Apr 3, 2014)

By Linda O’Brien, J.D., LL.M.

Automobile insurance companies allegedly engaged in a conspiracy to restrain trade by controlling and suppressing the prices paid to auto body repair businesses for their products and services through manipulation and coercion, according to a complaint filed in the federal district court of Indianapolis (Indiana AutoBody Assn., Inc. v. State Farm Mutual Automobile Insurance Co., April 1, 2014).

The Indiana AutoBody Association, Inc. (IABA) is a nonprofit trade association that represents businesses engaged in the collision repair of automobiles. State Farm Mutual Automobile Insurance Company is an insurance company registered with the Indiana Department of Insurance to do business in the State of Indiana.

The complaint alleges that insurance companies that provide automobile policies to consumers in the State of Indiana have artificially depressed automobile damage repair costs to the detriment of the auto body businesses, policyholders, claimants, and consumers. The insurance companies exert control over the auto body businesses by entering into Direct Repair Program (DRP) agreements with individual auto body businesses. Under the DRPs, in exchange for certain concessions of price and priority, the insurance companies would list the body shop as a preferred provider. The concessions demanded by the insurers were not balanced by purported benefits, it was alleged.

According to the Company Market Share Report, May 2013, State Farm has captured 24.98 percent of the private passenger automobile insurance business within the market area of the state of Indiana. Based on the report, State Farm holds a dominant position in the Indiana automobile insurance industry market. Collectively, the defendant insurance companies control over 75 percent of the market in Indiana.

According to the complaint, each DRP contains a provision that the body shop will charge no more than the “market rate” for any particular repair. To establish the market rate, State Farm utilizes surveys with certain geographical boundaries. Under the terms of the DRP, State Farm is not required to disclose any of the methods used to establish the market rate. The surveys are not performed with any scientific validity and do not represent the labor rates that the majority of auto body shops charge in a given area.

State Farm also maintains a business portal known as the Dashboard, which provides a report and rating of individual auto body shops based on quality, efficiency, and competitiveness. Of the total score possible, State Farm does not disclosure the weight given to each factor in reaching the score or how competitiveness of the shops is determined. Due to these opaque practices, State Farm maintains complete, unsupervised, and unreviewable authority to determine an individual body shop’s rating. The Dashboard rating determines a shop’s position of the list of preferred providers. A low rating would make it difficult for a potential customer to locate a particular body shop, the complaint alleges.

The complaint states that State Farm has manipulated the market and artificially suppressed the labor rate for relevant geographic areas by demanding auto body shops lower their labor rate. If the shop persists in efforts to raise its labor rate, State Farm will coerce the body by threatening to remove the shop from the Direct Repair Program or removing a shop from the Direct Repair Program.

The insurance companies have, independently and in concert, instituted methods to coerce the auto body businesses to accept less than actual or market costs for materials and supplies for completing repairs. The methods include: (1) refusal to compensate shops for replacement parts for repairs that are possible but not recommended based on the shop’s professional opinion; (2) using used or recycled parts rather than new parts even when the new part would be the highest quality repair for the vehicle; and (3) requiring discounts even when doing so requires the shop to operate at a loss.

The insurance companies have also repeatedly and intentionally failed to abide by industry standards for auto repairs. The insurers refusal to compensate auto body businesses for the ordinary and customary repairs and material costs place the shops in an untenable position of either performing incomplete or substandard repair in breach of their obligation to vehicle owners or expend labor and materials without proper compensation, according to the complaint.

IABA and the auto body shop businesses assert claims for quantum meruit, tortious interference with a contractual relationship, tortious interference with a business relationship, and antitrust violations. The action seeks treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:14-cv-00507-TWP-DKL.

Attorneys: Mark W. Sniderman (Sniderman Nguyen LLP) for Indiana AutoBody Assn., Inc.

Companies: Indiana AutoBody Assn., Inc.; State Farm Mutual Automobile Insurance Co.

News: Antitrust IndianaNews