why it's time to sue an insurer
By John Yoswick
The idea of taking an insurer to court to collect unpaid repair costs or to halt unfair steering or other practices is hardly new. Back in 1977, for example, Oregon shop owner Don Berger won a jury verdict in a lawsuit against Allstate Insurance in an early high-profile steering lawsuit when Berger maintained that the insurer’s first-of-its-kind, direct-repair program was “directing my customers away from my shop and setting up an unfair competition situation.”
A little over a decade ago, Illinois shop owner Bill Ebert won a $24.3 million jury verdict against State Farm in his suit against the insurer for tortious interference. [The actual amount Ebert received, through a confidential settlement reached to avoid having the insurer appeal the verdict or a judge reduce the award, is believed to be significantly less.]
So, although such suits are not new, in recent years more shop owners are turning to the courts for justice or relief, whether through “assignment of proceeds” actions, class action lawsuits, or individual suits.
Here’s a look at some of these cases, what they could mean for the industry, and what the participants would tell others thinking about pursuing similar action in the courts.
Using ‘assignment of proceeds’
A number of shops have successfully used “assignment of proceeds” actions to collect amounts insurers refused to pay for repairs. Because of the policy contract between the consumer and insurer, it generally is the consumer’s responsibility to sue an insurer for an amount not paid. But shops can use “assignment of proceeds” to essentially sue the insurer on the consumer’s behalf.
In two recent cases in Ohio, for example, Nationwide was unsuccessful in getting assignment of proceeds suits brought by Joe Pastorek’s Body Shop dismissed. Pastorek’s won both cases, with juries agreeing the insurer owed the three-employee shop in Sylvania, Ohio, a total of about $1,000 in unpaid charges for repairs to two vehicles. Nationwide argued that Pastorek’s charges were unreasonable: that the shop, for example, used OEM parts solely to drive up costs. But second-generation shop owner Joe Pastorek said he showed the jury that if profit was all he was interested in, he could have made more money using the non-OEM parts Nationwide wanted installed in the repair.
Patrick McGuire, an Illinois attorney who has assisted some shops with successful assignment of proceeds cases, said shops generally wait until they have a number of claims against a single insurer.
“From a shop owner’s perspective, it’s not without cost, so the shop has to figure out when it makes sense to do it,” McGuire said. “When it makes the most sense is when you see a pattern of the same type of procedure or part or operation not being paid for. You can aggregate those types of claims and bring them as one action and get an actual resolution to an ongoing problem, as opposed to taking it piecemeal, on a one-by-one basis”
Mike Parker of Parker’s Classic Auto Works in Rutland, Vt., for example, received nearly $12,000 from Nationwide Insurance earlier this year after successfully suing the insurer in small claims court for unpaid amounts owed to 31 Nationwide insureds who had their vehicles repaired at Parker’s shop.
In most states, such cases can go through small claims court. But McGuire cautions that shops need to know court rules in their particular state. In Illinois, for example, a corporation [rather than an individual] bringing a suit in small claims court must be represented by an attorney.
Not all states allow for a shop winning such claims to also collect legal fees, McGuire said. In order to do so in some states, for example, you must also show that the insurer’s refusal to pay was intentional or unreasonable.
And the legal fees can add up. In another assignment of proceeds case against Nationwide in New York, the insurer argued the case should be dismissed because the customers’ policies prohibited them from assigning claimed losses to another party without the insurer’s prior permission.
The judge ruled that anti-assignment clauses are valid for assignments prior to a loss and claim [when that could impact the insurer’s exposure] but not after. The shop’s attorney argued successfully that Nationwide has no interest in preventing a post-loss assignment of proceeds “other than an insurer’s desire to make it as cumbersome as possible for the insured to obtain what is owed under the insurance contract.”
But the judge did not find that Nationwide’s motion for dismissal of the case was brought in bad faith, and he therefore denied the shop’s request to have its court and attorney costs paid for by the insurer.
Ohio shop owner Pastorek acknowledges that his court and legal fees in the case he won were probably “10 times” the unpaid charges which he collected.
“But it was important for me because this industry has a problem with who runs the business,” Pastorek said. “The name on my building is Joe Pastorek’s Body Shop. It doesn’t say Nationwide Body Shop. I’ll set my prices based on my expenses, and my ability to make a profit, and I won’t compromise on those prices for anyone.”
Are there mistakes shops have made in filing assignment of proceeds cases?
“Sure, sometimes they’re a little over-reaching, asking for more than just the proceeds of the policy,” McGuire said. “You just have to be careful in how you draft, or have an attorney draft, your assignment, so that you’re not over-reaching, which can jeopardize your right to go after even the valid part.”
Individual shop suits against insurers
Talk with most of the shop owners who have been involved in individual lawsuits against insurers — even those who have been victorious — and most say they’re not sure they’d recommend that course of action for others.
“I watched my father get wrung-out by the process,” said Wade Ebert, whose father won his lawsuit against State Farm over a decade ago. “It was hard on him. It became a second job. It takes a toll. The cost in time alone is staggering.”
But like the Eberts, New York shop owner Greg Coccaro felt he had no choice but to file the tortious interference suit he is in the midst of with Progressive Insurance. He felt he had to change claims practices being used against his shop, and the suit was necessary to restore his shop’s reputation [and thus value] after Progressive unsuccessfully sued him for fraud [a jury found the shop not guilty in late 2010].
For every case that’s successful, there are plenty that fail.
A state court in Georgia last November granted State Farm’s motion to dismiss part of a shop’s lawsuit against the insurer and seven individually-named State Farm employees, saying Georgia’s “Motor Vehicle Accident Reparations Act,” on which part of the suit was based, does not allow for an individual’s right to sue over steering. The suit charges that the defendants made disparaging and false statements about the quality of the shop’s work and the reasonableness of its hourly charges. The judge did allow a trade libel portion of the suit to continue, disagreeing with State Farm’s contention that Georgia law does not allow a corporation to claim it has been libeled or damaged with regard to its business reputation.
A U.S. District Court judge in Florida in March 2010 dismissed a slander lawsuit brought against State Farm by Gunder’s Auto Center in Lakeland, Fla. [Gunder’s has filed unsuccessful appeals, and has most recently appealed the dismissal to the U.S. Supreme Court.] The suit alleged State Farm “intentionally” interfered with the shop’s relationships with its customers by falsely saying the shop was “overcharging its customers” and making repairs in “an untimely, inefficient and sub-standard manner.” The suit identified three specific customers the shop said would have had repairs done at Gunder’s but did not because of the insurer’s statements.
In seeking summary judgment to dismiss the case, State Farm successfully argued that even if its employees made false statements, such statements are “privileged” because State Farm was “communicating with a party seeking benefits under the insurance contract about an issue in which they have a common interest: the prompt and full payment of the repairs.” The insurer said the statements involve “the quality, timeliness or value of the plaintiff’s automobile repairs — subjects about which the insured and State Farm share a ‘corresponding interest.’”
The court agreed that State Farm’s statements were privileged, and though it said the shop still could have prevailed if it showed State Farm “uttered the statements with ‘express malice,’” the court ruled no evidence of such malice was presented.
“State Farm neither attacked the plaintiff’s moral character nor accused the plaintiff or its proprietors of violent crime; each allegedly slanderous statement concerns only the matter of common interest between State Farm and the insured: the quality and value of the [shop’s] work,” Judge Steven Merryday ruled. He said Gunder’s failed to “present evidence showing that State Farm’s ‘primary motive’ was to harm the [shop] rather than to further State Farm and the insured’s mutual interest in securing timely, quality repairs.”
So Ebert, Coccaro and Gunder say it’s important to understand the costs and commitment such actions involve. They said legal fees can run in the hundreds of thousands of dollars; Ebert said because their attorney wouldn’t take the case on a contingency basis, his father paid about $215,000 in legal fees out of his pocket during the process. The amount of time suits can involve over the course of years can be staggering. And if you have any “skeletons in your closet,” Coccaro said, an insurer you are suing will absolutely discover them.
On the upside, Ebert said, a suit can improve claims practices in your market, or bolster the resolve of other shop owners to take a stand. It can result in not only financial compensation, but also vindication and a feeling of more control over your own business.
“In my case, it has never been about money,” Coccaro said. “In my situation it was something I felt I had no choice and I had to pursue it.” •
John Yoswick, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network (for a free 4-week trial subscription, visit www.CrashNetwork.com). He can be contacted by e-mail at jyoswick@SpiritOne.com.
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