U.S. Senator Reiterates Call to Investigate Auto Insurance “Scheme”

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Fri, 20 Feb 2015

U.S. Senator Reiterates Call to Investigate Auto Insurance “Scheme”

A frequent critic of both insurance companies and vehicle manufacturers, U.S. Senator Blumenthal of Connecticut asks Attorney General to investigate possible illegal practices by auto insurers. Asks for DOJ update on 1963 Consent Decree’s applicability to today’s marketplace.

U.S. Senator Richard Blumenthal announced yesterday that he sent a letter to Attorney General Eric Holder urging the Department of Justice (DOJ) to investigate auto insurance company claim practices that were highlighted in a report last week by CNN. In 2009, when Blumenthal was the Attorney General of Connecticut, he asked the Department of Justice conduct a similar investigation.

The report by CNN, on which Blumenthal was interviewed, detailed allegations contained in the antitrust lawsuits filed by collision repair facilities alleging illegal activities by auto insurers. On the day of the CNN report, CollisionWeek reported on the amended complaint filed in A&E Auto Body, Inc., et al. v. 21st Century Centennial Insurance Company, et al, one of more than 20 antitrust suits pending in Florida.

In the letter, Blumenthal questions the parts used by collision repairers on insurance claims and raises the concern that consumers are being deceived by auto insurers and their safety may be at risk as a result.

“As junk yard, remanufactured, and used parts of substandard quality become increasingly widely available, auto insurers are adopting alarming new ways to save money at the expense of consumer safety. Contrary to what consumers may be led to believe by their insurers, repair shops preferred by insurers do not necessarily equate with quality repairs,” Blumenthal wrote. “It seems to be common knowledge among auto repair shops that the best way to land a coveted spot on an insurer’s preferred list is not necessarily by delivering consistent, quality service, but by agreeing to charge below-market labor rates and use cheaper, salvaged, used, or even counterfeit parts of questionable quality and safety.”

While criticizing the parts that repair facilities use in this most recent letter, Blumenthal has supported non-OEM parts suppliers and independent repair facility operators against vehicle manufacturers in the past on issues surrounding parts requirements and their impact on vehicle manufacturer warranties. In October, Blumenthal wrote a letter to the Federal Trade Commission (FTC) raising concerns that vehicle manufacturers deceive consumers about tying warranty terms to the use of OEM parts or services by dealerships.

Driver safety is a frequent topic of interest to Senator Blumenthal. On February 11, the day CNN aired its report on collision repair, Senator Blumenthal announced legislation to improve the security of vehicle electronic systems from hacking and to provide privacy protections to consumers. If passed, the legislation would direct the National Highway Traffic Safety Administration (NHTSA) and the FTC to establish federal standards to secure cars and protect drivers’ privacy.

1963 Consent Decree

In the letter to Attorney General Holder, Blumenthal also requested that the DOJ determine whether insurers are still bound by the terms of the oft-cited 1963 Consent Decree the DOJ entered into with several property casualty insurer associations and their members that sought to address insurer conduct with appraisers, independent and dealer collision repair facilities.

“I urge the DOJ to investigate and make a determination as to whether such practices violate the 1963 consent order or any other current federal laws. As you investigate this matter, I urge you to use your authority to investigate the contents of contracts between insurance companies and facilities listed in their direct repair programs or preferred lists,” Blumenthal wrote. “I would also like to request an update regarding DOJ’s understanding of the current signatories of the 1963 consent decree and whether they continue to be bound by the consent decree in light of business transactions in the years since the decree was signed.”

The DOJ has declined previous requests, going back decades, by the collision repair industry to enforce the consent decree.

In 1979, the DOJ determined that entering into perpetual decrees, such as the 1963 consent decree, was not in the public interest. Since then, decrees have included “sunset” provisions that will automatically terminate them after a period of time not to exceed 10 years. Most decrees entered into before 1980, like the 1963 Consent Decree between the DOJ and the insurance associations, do not contain this sunset provision.

Last year, the DOJ announced expedited procedures to allow parties to these perpetual consent decrees to have them modified or terminated. According to the DOJ, pre-1980 perpetual decrees cannot be terminated or modified except by court order.

In announcing the expedited process, the DOJ stated “Going forward, the department will advise courts that pre-1980 ‘legacy’ decrees, except in limited circumstances, are presumptively no longer in the public interest. Those limited circumstances may include when there is a long-standing reliance by industry participants on the decree.”

Collision repair facility plaintiffs in the antitrust lawsuits also included allegations that insurers were violating terms of the 1963 Consent Decree.

As CollisionWeek reported in January, U.S. District Judge Gregory A. Presnell, in a footnote to the order dismissing charges in the earlier complaint in the A&E Auto Body, Inc. suit found that the 1963 Consent Decree was not relevant to the case since the parties included in the consent decree were not part of this case. The footnote states, “In the Amended Complaint, the Plaintiffs repeatedly refer to a consent decree entered in a 1963 suit between the United States on one side and three insurance trade associations on the other. (Doc. 167-5). Although some of the practices at issue in the consent decree are alleged to have occurred in the instant case, none of the parties in this case were parties to the 1963 case, and the Court does not find the 1963 consent decree to have any relevance to the instant case.”

Full text of Senator Blumenthal’s letter to Attorney General Holder…

The Honorable Eric Holder Attorney General of the United States Robert F. Kennedy Building 950 Pennsylvania Avenue NW Washington, DC 20530

Dear Attorney General Holder:

As a longtime advocate of consumer choice, I write to bring to your attention to troubling new evidence that our nation’s top auto insurers continue to engage in anticompetitive and possibly illegal tactics to pressure consumers into repairing their vehicles at insurer-preferred repair shops. As uncovered in a special investigation featured on Anderson Cooper 360 Wednesday evening, insurance steering not only undermines a basic consumer right, but can also compromise the safety of vehicles on our nation’s roads—endangering motorists and their passengers.

I urge the Department of Justice (DOJ) to immediately investigate such practices by the auto insurance industry and act swiftly to protect the safety of consumers and preserve competition in the auto repair industry.

As junk yard, remanufactured, and used parts of substandard quality become increasingly widely available, auto insurers are adopting alarming new ways to save money at the expense of consumer safety. Contrary to what consumers may be led to believe by their insurers, repair shops preferred by insurers do not necessarily equate with quality repairs. It seems to be common knowledge among auto repair shops that the best way to land a coveted spot on an insurer’s preferred list is not necessarily by delivering consistent, quality service, but by agreeing to charge below-market labor rates and use cheaper, salvaged, used, or even counterfeit parts of questionable quality and safety. Unfortunately, many consumers are also being misled into thinking that they are required to have their car repaired at one of these shops. This has the harmful effect of limiting consumer choice, creating a serious safety risk, and suppressing competition in the auto repair industry.

According to a 1963 consent decree with the DOJ, a number of insurers were ordered to stop: “sponsoring any appraiser; directing, advising or otherwise suggesting any person or firm do business with any independent or dealer-franchised automotive repair shop; exercising control over the activities of any appraiser; and fixing or otherwise controlling the prices charged by automotive repair shops for the repair of damage to the vehicle or for labor in connection therewith, by use of a flat rate.” Over 50 years have since passed, and consumers and auto repairers possibly remain victims of the very same misconduct insurers were directed to stop doing decades ago.

I urge the DOJ to investigate and make a determination as to whether such practices violate the 1963 consent order or any other current federal laws. As you investigate this matter, I urge you to use your authority to investigate the contents of contracts between insurance companies and facilities listed in their direct repair programs or preferred lists. I would also like to request an update regarding DOJ’s understanding of the current signatories of the 1963 consent decree and whether they continue to be bound by the consent decree in light of business transactions in the years since the decree was signed.

Thank you in advance for your prompt attention to this important matter harming consumers and the auto repair industry, and compromising vehicle safety.

Sincerely,

RICHARD BLUMENTHAL United States Senator

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