When Does Insurer Steering Become Illegal?
Most body shop operators are familiar with the word tracks used by insurers to dissuade their policyholders and claimants from venturing outside the bounds of their preferred shops. While a growing number of auto body shops have come to depend on the persuasive powers of the insurers to fill their bays with referrals, it’s clear these customers might have had other plans prior to their contact with an insurer.
The phraseology can range from not-so-subtle innuendoes, such as “we’ve had problems with them before,” to out and out slander. While the majority of dealings your customers have with their insurance companies would never rise to the standard of a tort — defined by nolo.com as an injury to one person for which the person who caused the injury is legally responsible — there’s a growing awareness of the term “tortious interference” in the collision repair industry.
Why is there a growing awareness and what exactly does tortious interference (TI) mean to you and your shop? It means that if an insurer, for example, has interfered with your business so much that it qualifies as a tort, there’s hope for you to take on that insurance company — and win.
Several years ago, the case of American Auto Body vs. State Farm Mutual Insurance Company went before an Illinois court, and the jury came back with a $27 million verdict against the insurer. This case should have stunned the industry a good deal more than the $1.2 billion dollar judgment in the class-action suit involving aftermarket parts against the same insurer, but it received far less publicity. In fact, there are those in the industry who, to this day, don’t know who American Auto Body’s owner Bill Ebert is, much less understand the significance of what he did for the industry. Yet it was he who softened the beaches with respect to TI. So why did the settlement receive such scant publicity? It’s been more or less standard practice by the defendants to seal TI cases and to make settlement amounts confidential because, in part, news of shop success in these cases could have the potential to encourage an onslaught of them.
Though there hasn’t been an onslaught, in September of this year, State Farm settled with eight Mississippi body shops that filed suit against the insurer for TI. A reported multimillion-dollar settlement was to have been made to the shops, which included Bolden Body Shop (the first to file the suit in 1996), Stegall Auto Body and Clinton Body Shop. As is customary in TI cases, the case was sealed and the settlement confidential. Since then, Clinton Body Shop’s owner John Mosely is said to have filed TI cases against both Nationwide and Progressive insurance companies.
Sources tell BSB that at the introduction of the State Farm Service First program in Jackson, Miss., Clinton Body Shop’s business with State Farm insureds dropped from 33 percent to less than 10 percent. Clinton’s refusal to make the price concessions demanded under the program resulted in its exclusion. One of Clinton’s customers, Pearline Ross, owner of a 1999 Dodge Stratus, was steered from Mosely’s shop to a local dealership body shop. Ross was deposed by the defense in this case and, presumably, provided enough evidence of wrongdoing with respect to what State Farm told her about Clinton Body Shop that the insurer decided to settle.
Tortious or wrongful interference in a business relationship has applications to the contract formed between a body shop and its customers. While a shop may not have a contract until a prospective customer actually signs a repair authorization, such interference has a way of excluding shops from competing for the work. And when the meddling of a third-party payer goes over the line with regard to that payer’s inducements to steer away an insured from a particular business, the harm can be actionable. What’s worse (for the insurer) is when a systematic effort to steer customers can be established and documented. In the eyes of the law, this has to be distinguished from the legitimate furtherance of one’s own business.
To fully understand the difference between the legitimate conduct of business and TI, you have to examine what the contractual and ethical duties of the parties are. An insurance company has a duty to its policyholders and to its stockholders. In the case of a mutual company, they’re one in the same. An insurer has no legal duty, however, to a body shop. One isn’t bound by contract or ethics to be fair to a third party. In fact, an insurer is duty bound to pay as little as it can to settle claims because it’s in its own self-interest as well as that of the pool of insured parties. That being understood, the use of hardball or adversarial tactics to settle claims on their policyholders’ cars in your shops could be construed as acceptable conduct — provided those tactics conform to state laws and regulations. It’s essentially a matter of what’s said to policyholders and claimants and whether those statements have basis in fact.
TI comes into play when one or more shops are targeted as a means of excluding them from the competitive market. The line determining what is and isn’t interference, however, can be subject to a court’s interpretation. While the examples of the Mississippi shops and American Auto Body tell us these cases can bear fruit when a court is presented with overwhelming evidence, State Farm reports that they’ve successfully defended past TI claims brought against them by body shops.
“There was the case of Taylor’s Auto Body Shop v. State Farm Mutual Insurance Company filed in Virginia in 1993,” says Dave Hurst, State Farm media relations. “In essence, the shop said they did estimates for 50 SF customers who went elsewhere after we told them we couldn’t guarantee the work of a non-reference shop. The judge said we had a right to communicate with customers, and the federal court granted a summary judgment in that case.”
Another case involved glass work and State Farm’s actions in the determination of a competitive market. “There was the 1995 case of Glass Service Company v. State Farm in Minnesota,” says Hurst. “Glass Service alleged TI in [State Farm’s] contract by directing its insured to other vendors. The district court granted summary judgment, the plaintiff appealed and the appellate court upheld the district court ruling. They said that scheduling customers didn’t constitute a contract and that an insurer was justified in advising its insured about policy limitations in paying for glass repair. We told people that if they went to the shop, they might have to pay some of the bill themselves. The court said that’s acceptable.”
But insurance company inducements can be determined to be unlawful when the inducement is made through the use of untruthful means. Basically, an insurance company can’t spread lies about the owner, employees or business practices of a body shop. Potentially libelous statements such as “they’re dishonest” or “they always overcharge” can cause harm and form a basis for a TI suit. Of course, they say the best defense against charges of libel is the truth, so a shop considering filing a TI suit had better check its closets for skeletons.
There’s also a much more innocuous form of interference with the contract formed by and between a body shop and its customers. And that would include the infamous “we may not be able to help you” letters sent to policyholders by insurers like State Farm. We’ve all seen these sorts of letters. Yet Hurst referred to a Mississippi TI case filed in the early 1990s in which their “we may not be able to help you” letters were found by a federal court to be part of a reasonable promotion of State Farm’s business. Clearly, the situation isn’t black and white.
What’s clear is that the law protects those in pursuit of their livelihood. This doesn’t, however, mean businesses are exempt from the rules of competition. You must be prepared to compete if you’re to engage in the business of collision repair. And insurance companies have been masters of leveraging that competition — even to the point of the establishment of self-serving versions of the competitive market.
Tortious interference rises when a shop is deprived of the right to compete with local repair providers. Clearly, DRP agreements, insurer steering and preferred shop networks depend on such intervention as a means to circumvent real competition by eliminating players from the market. The question is whether the subtle nudge given to a customer is tortious.
TI cases appear to be the single strongest equalizer available directly to the independent repair facility today,” says Mark Cobb, president of the Coalition for Collision Repair Excellence (CCRE). “These cases appear to move forward by documenting the daily issues that arise when insurers interfere with a collision shop’s right to effectuate contracts of repair with their customers.
“The requirements necessary to move these cases forward appear to be the collection of data that exists in the hands of the shop and the shops potential customers. As shops begin to realize how important documentation is, the format of these cases will get even easier. Shops should learn how to document these cases properly and be ready to move forward as soon as they’re able to obtain qualified legal representation. These TI cases could be the answer for a number of shops. It’s amazing how many smoking guns are in the hands of these shop owners.”
The most challenging part of bringing a TI case is to establish damages. That is, can a plaintiff say with any degree of certainty that he’s lost a substantial amount of business based on an insurance company’s acts? He’d also have to provide witnesses willing to testify in court that they were effectively dissuaded by an insurer from using the services of a particular body shop and that if it hadn’t been for the interference, they would have done business with the plaintiff.
If a plaintiff can’t establish damages, there’s no tort. So it’s not enough for a shop owner to believe he’s lost work due to the interference of a third-party payer; he must conclusively prove it. Furthermore, the alleged interference must be the direct cause of the damages.
Whether a body shop has a good case depends on the quality and quantity of its evidence. You may think insurance companies have harmed, or in some cases, ruined your business, but how do you know? And how many dissatisfied customers do you have lurking out there? This is important because if you file suit against a major insurance company, you can be sure their defense lawyers will dig them out of the woodwork to show a court that your business was losing jobs based on poor service, an unattractive waiting room, a surly manager or all of the above. The potential for it to get ugly is clear.
How has your customer base grown or shrunk over a given period over which you allege TI? It’s common knowledge that auto accident frequency has been declining for the last decade, so it’s logical to conclude that collision shops would see a proportionate decline in their numbers.
So how can you attribute a loss in sales to an insurer when collision repair work is on the decline? You’d have to track a competitor’s corresponding increase — one whose client list now includes your former customers. And even that might not prove a thing. In fact, it could possibly prove the case for the defense — in which it’s concluded that you’re simply a bad businessperson.
As much as we like to tell ourselves that we own our customer base, the fact is, we don’t. If your customers can buy products and services for the same price but may experience better service or convenience, there’s nothing holding them captive. What you do have rights to is the opportunity to compete.
Will State Farm change its behavior based on the TI lawsuits and the potential for these to mushroom? Wade Ebert, American Auto Body’s general manager and son of owner Bill Ebert, says yes, the threat of TI cases has changed the behavior of State Farm and other insurance companies.
“It’s my opinion,” says Ebert, “that these cases are the main reason why State Farm discontinued their reference list.”
Though that matter is up for debate, it’s clear that State Farm is still committed to its Service First network of shops and says it’s reasonably certain the program’s criteria doesn’t discriminate other than a shop’s ability to deliver quality repair work. It seems the acts of interference in the business of operating body shops deemed tortious by the courts are closer to ground level and don’t appear in the insurer’s corporate records or claims manuals. That, however, doesn’t stop local claims personnel who operate under certain guidelines and incentives from making statements to your customers — statements that would stop customers from doing business with your shop and statements that the insurer would never want repeated, particularly in a courtroom.
But that potential threat doesn’t seem a cause for alarm at State Farm. In fact, it appears it’s still business as usual.
“I think we’re following the same basic practices we’ve followed for years: Get the repair work done at reasonable prices,” says Hurst. “Service First is an effective way to do that. We’ve had lawsuits directed toward us by shops, [but]our main goal is to service the customer, as opposed to [sustaining]the body shops.”
Writer Charlie Barone has been working in and around the body shop business for the last 27 years, having owned and managed several collision repair shops. He’s an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993. Barone can be reached via e-mail at email@example.com.
Think You’ve Got a Case?
If you’re seriously considering going after an insurer for tortious interference, document, document and document some more.What should you do if you think you’ve got a tortious interference (TI) case?
Track customers who came to your shop for estimates and never returned. They may have been convinced not to bring their cars to your shop. Find out why they didn’t and what persuaded them not to be a customer.
Add copies of letters sent to your customers’ files that would have the effect of causing them not to bring their cars to your shop. This may take some investigative work, but it would be invaluable as evidence in a future TI suit.
Ask your customers (assuming they’re sympathetic to your case) to document conversations they’ve had with their insurance companies. While it’s illegal to tape record telephone conversations in many states without the consent of both parties, telephone answering machines and voice mail recordings can reveal a good deal of information about what’s being said. When someone leaves a voice mail, the assumption is made that it’s being recorded.
Keep track of sales trends in which a disproportionate percentage of customers with a particular insurance company account for a decline in sales. For example, if XYZ Insurance Company insures 30 percent of the drivers in your area and those policyholders represent less than 5 percent of your sales volume, you may be a victim of TI.
What’s a Tort?
The Nolo Shark Talk Dictionary (www.nolo.com) defines a tort as an injury to one person for which the person who caused the injury is legally responsible. A tort can be intentional — for example, an angry punch in the nose — but is far more likely to result from carelessness (called negligence), such as riding your bicycle on the sidewalk and colliding with a pedestrian. While the injury that forms the basis of a tort is usually physical, this isn’t a requirement. Libel and the “intentional infliction of mental distress” are acts found on a good sized list of torts not based on a physical injury.