Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DConn: Repair Shops May Proceed with Claims Against Progressive Insurance Over Repair Program , (Mar 1, 2013)

By Tobias J. Gillett, J.D., LLM.

A class of auto body repair shops has stated Connecticut Unfair Sales Practices Act (CUSPA) and Connecticut Unfair Trade Practices Act (CUTPA) claims against Progressive Casualty Insurance Company and Progressive Direct Insurance Company (“Progressive”) over Progressive’s alleged suppression of labor rates paid to repair shops with which it contracts, its requirement that its shops follow certain parts and repair criteria, its efforts to control the price of appraisals, its misrepresentations regarding the labor rates, and its requirement that the shops employ repair processes that did not comply with appropriate standards, the federal district court in Bridgeport, Connecticut, has ruled (A&R Body Specialty v. Progressive Casualty Insurance Co., February 27, 2013, Eginton, W.).

Progressive contracts with a range of automobile physical damage repair shops through the Direct Repair Program (DRP). The DRP shops agree to charge Progressive set rates, while Progressive informs its insureds that it will not conduct business with shops outside the program and that claims may be denied if the insured uses an out-of-network shop.

Under the DRP, shops allegedly must agree to artificially suppressed labor rates and follow Progressive’s criteria for the use of space parts and the repair of vehicles. All damages must be assessed by appraisers employed by Progressive. Progressive allegedly required its appraisers to approve only labor rates below a certain level that was below market value, despite representing to the DRP shops that it paid market labor rates.

Progressive established two facilities that would appraise damages to vehicles and then transport them to a repair shop. Progressive claimed that the facilities would provide better services for consumers and that the DRP shops would provide faster service, but allegedly there was no difference in the speed with which a DRP shop and a non-DRP shop could provide an estimate.

A class of repair shops filed a class action complaint asserting that Progressive’s actions violated (1) a 1963 Justice Department consent decree that sought to enjoin insurance companies from controlling prices paid for the appraisal of repair charges, (2) “public policy expressed in guidelines issued by the Connecticut Department of Insurance for determining reasonable labor rates,” and (3) Connecticut statutes. They further claimed that Progressive had misrepresented the fact that it paid below-market labor rates, and that Progressive mandated repair processes that did not comply with appropriate standards. Progressive moved to dismiss.

The court first addressed the repair shops’ claim that Progressive’s “pricing, appraisal and steering practices constitute unfair practices in violation of CUTPA.” Under that law, a court must consider “(1) whether the practice . . . offends public policy as it has been established by statute, the common law, or otherwise”; “(2) whether it is immortal, unethical, oppressive, or unscrupulous”; and “(3) whether it causes substantial injury to consumers, competitors, or other businessmen.” A claim can be established by meeting any of these criteria, or all three to a lesser degree.

Here, Progressive may have violated public policy found in the 1963 consent decree, Connecticut insurance regulations, and Connecticut statutes. The repair shops had also alleged economic injury arising from suppressed labor rates or loss of customers. Therefore, the repair shops had stated a CUTPA claim.

The court then proceeded to review the repair shops’ CUTPA claim based on deceptive practices. Such a claim required showing “(1) defendants made a material representation, omission, or other practice likely to mislead consumers and affect their decisions, and (2) consumers interpreted the message reasonably under the circumstances.” The court assumed for purposes of the motion that the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) applied to the claim.

The repair shops had alleged that Progressive made misrepresentations that it paid market labor rates, that its appraisers would be fair and impartial, that non-DRP shops were lower-quality and higher cost, that DRP shops would provide quicker service, that Progressive had a lifetime guarantee while conveying that other shops do not, and that service will be delayed unless the consumer uses a DRP shop.

The court found that the complaint met the requirements of Rule 9(b). Although the complaint did not specify the identities of the insureds or claimants to whom the statements were made, those individuals would not have to provide a defense. Moreover, Progressive knew the identities of its insureds and claimants. The court concluded that “[t]he allegations are sufficiently detailed to ensure that [Progressive] ha[s] fair notice of the claims, that defendants’ reputation is safeguarded from improvident charges, and that defendants are protected from a strike suit.”

The court next took up the repair shops’ claim under the CUSPA. The CUSPA stated that someone “likely to be damaged by a deceptive trade practice of another may be granted an injunction enjoining such practice under the principles of equity.” As with the claim for deceptive practices under the CUTPA, the court concluded that the allegations satisfied Rule 9(b). The court also concluded that it could not as a matter of law decide that the CUSPA could not be remedied by injunctive relief. Therefore, court refused to dismiss the claim.

The court also declined to dismiss claims for tortious interference with business expectancy and unjust enrichment.

The case is No. 3:07-cv-0929 (WWE).

Attorneys: Alan Neigher (Byelas & Neigher) for A&R Body Specialty. Alan J. Sobol (Pullman & Comley) for Progressive Casualty Insurance Co.

Companies: A&R Body Specialty; The Auto Body Association of Connecticut; Progressive Casualty Insurance Co.; Progressive Direct Insurance Co.

Cases: StateUnfairTradePractices ConnecticutNews