Body shops sue insurers over repair compensation

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INDIANAPOLIS (AP) - Indiana body shops and auto insurers are on a collision course over repair compensation practices, a dispute that could cost millions of dollars to patch up.

In a federal lawsuit, 14 Indiana shops accuse State Farm Insurance and competitors of extracting “unreasonable and onerous” concessions on vehicle repair costs. When a shop doesn’t comply with price ceilings, the insurers dissuade policyholders from choosing that shop for repairs by telling them it has quality issues or gets lots of complaints, the shops allege in the suit filed April 2.

“There’s going to be a battle,” says Tony Passwater, executive director of the Indiana Auto Body Association, the lead plaintiff.

The suit seeks unspecified financial damages and names 27 insurers including Illinois-based State Farm, which has the largest market share in the state at about 25 percent. Others with large market share include Ohio-based Progressive Insurance and locally based Indiana Farmers Mutual Insurance Co.

The suit is just the latest brought by the collision-repair industry, which has filed similar cases this year in Florida and Mississippi.

At the core of these cases is the relationship body shops have with insurers under what are known as “direct repair program agreements,” the Indianapolis Business Journal reported (http://bit.ly/1hSklfU ).

When introduced more than a decade ago, many shops initially embraced such agreements for the prospect of insurers’ steering more business their way in exchange for giving them some breaks on pricing, Passwater said.

Today, however, shops allege such agreements have evolved in favor of insurers - a big problem, as shops on average receive 75 percent to 95 percent of their revenue from customers with insurance.

When insurers don’t cover the full cost of repairs, “it’s such a difficult thing to pass on to a customer,” said Kevin Wells, who operates Quality Collision Inc. in Bloomington and is a plaintiff in the suit.

Wells said he often just eats the cost the insurance company won’t pay.

“I’m taking it in the shorts by about $6 an hour for every job I do,” Wells said.

The lawsuit takes aim at State Farm, which uses its dominant and influential position among other insurers in “spearheading efforts to control and artificially depress damage repair costs,” the suit alleges.

State Farm spokeswoman Missy Dundov denied the allegations but declined to elaborate.

“This suit has no merit and in no way accurately describes the business relationship State Farm has with thousands of body shops across the country,” she said.

A spokeswoman for Indiana Farmers said the company had not received notice it had been named in a suit.

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