Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Insurance companies charged with suppressing damage repairs costs paid to auto body shops, (Oct 28, 2014)

By Linda O’Brien, J.D., LL.M.

State Farm and numerous automobile insurance companies allegedly engaged in a conspiracy to restrain trade by suppressing the prices paid to auto body repair businesses and using boycotts to steer customers away through misrepresentations and coercion, according to a complaint filed in the federal district court of Grand Rapids, Michigan (Rodenhouse Body Shop, Inc. v. State Farm Mutual Automobile Insurance Company, October 27, 2014).

Rodenhouse Body Shop, Bernardi & Judge, Clarkston Auto Body, Classic Auto Collision, H.D. Way, Jerry’s Body Shop, Judd’s Body Shop, Lantagne’s Auto Body, Northville Collision, Professional Finish, and R&R Auto Body Repair are in the business of repairing motor vehicles involved in collisions. State Farm Mutual Automobile Insurance Company is an insurance company registered with the Michigan Department of Insurance to do business in the State of Michigan. The auto body businesses have provided motor vehicle collision repair services to policyholders and claimants of several automobile insurance companies, including State Farm.

The complaint alleges that the insurance companies have engaged in an ongoing, concerted, and intentional course of action with State Farm to illegally control and depress automobile damage repair costs to the detriment of the auto body businesses and to substantial profit of the insurance companies. The insurance companies exert control over the auto body businesses by entering into Direct Repair Program (DRP) agreements with individual auto body businesses. The DRPs were presented to the auto body businesses as a mutually beneficial opportunity. 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 allegedly were not balanced by purported benefits.

According to the complaint, the insurance companies, particularly State Farm, has engaged in an ongoing practice of coercion and implied threats to the pecuniary health of the individual auto body businesses to force compliance with unreasonable and onerous concessions under the DRPs. Failure to comply results in either removal from the preferred provider programs combined with improper steering of customers away from the plaintiffs’ businesses or punishment to decrease the number of customers utilizing the plaintiffs’ services.

According to the Company Market Share Report, May 2013, State Farm has captured 19.97 percent of the private passenger automobile insurance business within the market area of the State of Michigan. Based on the report, State Farm holds a dominant position in the Michigan automobile insurance industry market. Collectively, the defendant insurance companies control over 88 percent of the private passenger automobile insurance market in Tennessee. The vast majority of the plaintiffs’ business is generated by customers for whom the defendant insurance companies are responsible to pay the repair costs. Those customers account for between 70 and 95 percent of each auto body shop’s revenue.

Each DRP contains a provision that the body shop will charge no more than the going rate in the market area 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. There are no provisions for independent or neutral verification of the data utilized, or any oversight not directly within the control and direction of State Farm, the complaint states.

State Farm 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 and unsupervised 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 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 allegedly will coerce the body shop by threatening to remove it from the Direct Repair Program or removing it from the Direct Repair Program. The net effect of this tactic allows State Farm to manipulate the market rate and artificially suppress the labor rate for the relevant geographic area, according to the plaintiffs.

The insurance companies alleged 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 used 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; and (2) employment of used or recycled parts rather than new parts even when the new part would be the highest quality repair for the vehicle. The insurance companies allegedly have also repeatedly and intentionally failed to abide by industry standards for auto repairs. The three leading collision repair estimating databases provide the software and average costs associated with particular repairs to create estimates. Although the insurers have admitted acceptance of these estimating databases in the industry, they have refused to make full payment for procedures and materials, according to the complaint.

The auto body shop businesses assert claims for quantum meruit, unjust enrichment, quasi-estoppel, tortious interference with business relations, conversion of profits and the plaintiffs’ businesses, and violations of Section 1 of the Sherman Act and the Michigan Antitrust Reform Act. The action seeks injunctive relief, compensatory, treble and punitive damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:14-cv-01107-GJQ.

Attorneys: Andrew J. Rodenhouse (Rodenhouse Kuipers P.C.) for Rodenhouse Body Shop, Inc., Bernardi & Judge Corp., Clarkston Auto Body, Inc., Clarkston Auto Body II, Inc., Classic Auto Collision, Inc., H.D. Way Corporation, Jerry’s Body Shop Inc., Judd’s Body Shop Inc., Lantagne’s Auto Body, LLC, Northville Collision, Inc., Professional Finish, Inc., and R&R Auto Body Repair, Inc.

Companies: Rodenhouse Body Shop, Inc.; Bernardi & Judge Corp.; Clarkston Auto Body, Inc.; Clarkston Auto Body II, Inc.; Classic Auto Collision, Inc.; H.D. Way Corporation; Jerry’s Body Shop Inc.; Judd’s Body Shop Inc.; Lantagne’s Auto Body, LLC; Northville Collision, Inc.; Professional Finish, Inc.; and R&R Auto Body Repair, Inc.; State Farm Mutual Automobile Insurance Company; Auto Club Group Insurance Company; Auto-Owners Insurance Company; Progressive Michigan Insurance Company; Allstate Insurance Company; AllAmerica Financial Alliance Insurance Company; The Hanover Insurance Company; Citizens Insurance Company of America; Farm Bureau Mutual Insurance Company of Michigan; Liberty Mutual Insurance Company; Nationwide Mutual Fire Insurance Company; Frankenmuth Mutual Insurance Company; United Services Automobile Association; Pioneer State Mutual Insurance Company; Hartford Casualty Insurance Company; Grange Insurance Company of Michigan; Michigan Millers Mutual Insurance Company; Hastings Mutual Insurance Company; Foremost Property and Casualty Insurance Company; Farmers Insurance Exchange; Esurance Insurance Company; Wolverine Mutual Insurance Company; The Cincinnati Insurance Company; Secura Supreme Insurance Company; Horace Mann Insurance Company; Donegal Mutual Insurance Company; Meemic Insurance Company

News: Antitrust MichiganNews