Antitrust Law Daily Wrap Up, ANTITRUST NEWS: State Farm, other insurance companies alleged to have suppressed damage repairs costs paid to auto body shops, (Apr 23, 2014)

By Linda O’Brien, J.D., LL.M.

A group of automobile insurance companies allegedly engaged in a conspiracy to restrain trade by suppressing the prices paid to auto body repair businesses and by steering customers away from body shops that did not comply with their labor and material cost standards, according to a complaint filed in the federal district court of Memphis (Brewer Body Shop, LLC v. State Farm Mutual Automobile Insurance Company, April 22, 2014).

Brewer Body Shop, AAA Collision Center, and Icon Collision Services are in the business of recovery and/or repair of motor vehicles involved in collisions. State Farm Mutual Automobile Insurance Company is an insurance company registered with the Tennessee Department of Insurance to do business in the State of Tennessee. 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 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. 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.

According to the Company Market Share Report, December 2012, State Farm has captured 24.4 percent of the private passenger automobile insurance business within the market area of the State of Tennessee. Based on the report, State Farm holds a dominant position in the Tennessee automobile insurance industry market. Collectively, the defendant insurance companies control over 90 percent of the private passenger automobile insurance market in Tennessee.

According to the complaint, the insurance companies, particularly State Farm, have 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.

Each DRP contains a provision that the body shop will charge no more than the going 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. There are no provisions for independent or neutral verification of the data utilized. State Farm’s methodology does 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. State Farm does not disclose the weight given to each factor in reaching the total 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 will coerce the shop by threatening to remove it from the Direct Repair Program or actually removing it 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 used for completing repairs. The methods include: (1) refusing 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 also have 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 complaint alleges that State Farm also imposes restrictions upon the auto body businesses ability to obtain and use quality replacement parts and materials. Under the DRP agreements, State Farm asserts unilateral authority to enter into separate agreements with manufacturers, distributors, and suppliers of automotive parts, supplies, and materials.

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

The case is No. 2:14-cv-02286.

Attorneys: Halbert E. Dockins, Jr. (Dockins Tunnage & Banks, PLC) for Brewer Body Shop, LLC, AAA Collision Center, LLC, and Icon Collision Services, LLC.

Companies: Brewer Body Shop, LLC; AAA Collision Center, LLC; Icon Collision Services, LLC; State Farm Mutual Automobile Insurance Company; Tennessee Farmers Mutual Insurance Company; Progressive Hawaii Insurance Company; Allstate Insurance Company; Nationwide Mutual Insurance Company; GEICO General Insurance Company; United Services Automobile Association; USAA Casualty Insurance Company; Safeco Insurance Company of Illinois; Direct General Insurance Company; Shelter General Insurance Company; Liberty Mutual Insurance Company; Travelers Property Casualty Insurance Company; Hartford Casualty Insurance Company; Auto-Owners Insurance Company; State Auto Property and Casualty Insurance Company; First Acceptance Insurance Company of Tennessee, Inc.; Pennsylvania National Mutual Casualty Insurance Company

News: Antitrust TennesseeNews