Following in the footsteps of repair companies in Florida, a group of repair shops in Indiana have filed a lawsuit against State Farm and dozens of other insurers, alleging the insurers use their direct repair programs to “artificially depress” repair rates and if shops don’t agree, customers are “improperly steered” away. Like the case in Florida, this lawsuit has potential implications for the AGRR industry, as automotive glass repair companies allege similar issues with third-party administrators (TPAs), which handle glass claims for insurers.
“Over the course of several years, the defendants have engaged in an ongoing, concerted and intentional course of action and conduct with State Farm spearheading efforts to control and artificially depress automobile damage repair costs to the detriment of the plaintiffs, policyholders, claimants and consumers, but to the substantial advantage of the defendants,” write attorneys for the Indiana Autobody Association, the lead repair organization listed as a plaintiff in the case filed in the U.S. Southern District Court of Indiana, Indianapolis division.
“One method by which the defendants exert control over plaintiffs’ businesses is by entering ‘program agreements’ with individual plaintiffs and other body shops that are similarly situated,” attorneys claim. “Although each defendant’s program agreements have unique titles, such agreements are known generically within the collision repair industry as direct repair program agreements (DRPs). … However, the concessions demanded by insurers in exchange for remaining on the direct repair program were not balanced by the purported benefits. The defendants, particularly State Farm, have utilized these agreements to exert control over the shops in a variety of manners, and well beyond the constraints imposed by an ordinary business agreement.”
“Upon information and belief, defendants, particularly State Farm, have engaged in an ongoing pattern and practice of coercion and implied threats to the pecuniary health of the individual plaintiff’s businesses in order to force compliance with unreasonable and onerous concessions,” attorneys allege. “Failure to comply by a shop results in either removal from the DRP, combined with improper ‘steering’ of customers away from the plaintiff’s business, or simply punishment to decrease the number of customers utilizing the plaintiff’s services.”
If a repair shop “persists in its efforts to raise its labor rate,” the attorneys allege that State Farm takes one or more “corrective measures.”
“It will go into the individual shop’s survey responses and unilaterally and wrongfully alter the labor rate listed without the knowledge or consent of the shop and use this lowered rate to justify its determination of the ‘market rate.’ It will threaten to remove the shop from the direct repair program to coerce compliance. It will also remove the shop from the direct repair program,” attorneys claim.
“The net effect of this tactic is to allow State Farm to manipulate the market rate and artificially suppress the labor rate for the relevant geographic area, which is defined solely by State Farm and is not subject to either neutral verification or even disclosure,” they allege.
The repair shops have asked the court for a prayer for relief, including compensatory and treble damages, as well as injunctive relief and punitive damages.
State Farm has not responded in court as press time and the judge has not issued any decisions.
To read a copy of the lawsuit, click here.