Antitrust suits against insurers largely dismissed; class action over scanning scaled back
By John Yoswick
Courts around the country in recent months have worked through legal challenges regarding insurance industry practices, sale of non-OEM crash parts, and paint company contracts with shops. Here is Automotive Report’s annual look at recent and ongoing legal battles, and what they could mean for the industry.
Two dozen antitrust lawsuits winding down
In 2013 and 2014, shops and shop associations from 18 states (including Alabama, Kentucky, Louisiana, Mississippi and Tennessee) signed on to a total of about two dozen lawsuits, all alleging that multiple insurance companies have conspired to manipulate labor rates and other shop charges in order to reduce costs.
Seven years later, after what the federal judge overseeing all the cases called a “tedious, contentious and frustrating” process, the lawsuits have largely all been dismissed before ever going before a jury. Judge Gregory Presnell, in a final ruling this summer relative to the version of the lawsuit brought in 2014 by about 20 Florida shops, pulled no punches in his assessment of the lawsuit. He noted that despite giving the shops’ Florida-based attorney several chances to amend the lawsuit during the process, the final version had become “much wordier,” but still did “not come remotely close to satisfying the minimum pleading requirements for any of the claims asserted.”
In upholding Presnell’s dismissal of one of the similar lawsuits brought by shops in Mississippi, the Eleventh Circuit Court of Appeals earlier this year picked apart the shops’ arguments in the lawsuit. An insurer saying it “will pay no more than State Farm pays for labor” is not necessarily price-fixing rather than just “price leadership,” following the example set by a competitor without agreeing to do so in advance, the appeals court ruled. The shops didn’t argue that State Farm necessarily even shared its established labor rates with other insurers, the court noted. If “State Farm sends out its new labor rates to the body shops with whom it deals, and USAA independently matches those prices in short order,” that’s consistent with lawful price leadership, the appeals court ruled, and “not enough to make collusion more plausible than [mere] conscious parallelism.”
Similarly, that different insurers use the same reasons for refusing to pay a shop’s labor rate doesn’t necessarily suggest a conspiracy, the appeals court ruled; it’s just as plausible the insurers are independently using similar tactics rather than acting based on a prior agreement with the other companies.
As it did last year when affirming the dismissal of similar lawsuits brought by shops in New Jersey and several other states, the appeals court also found that insurers using similar tactics as one another to dissuade a customer from using a particular shop doesn’t plausibly suggest a conspiracy more than it is just “methods that would logically be employed by any insurer.”
One portion of one of lawsuits, however, remains in play. The appeals court did say two of the Mississippi shops adequately alleged claims of tortious interference by Progressive. In the lawsuit, AutoWorks Collision Specialists in Jackson, Miss., and Walker Collision Center Picayune, Miss., each pointed to a specific customer they lost because Progressive allegedly told the customer it would guarantee the repair work if the customer used Progressive’s preferred shops.
“But the ‘preferred shops’ often do not live up to these ‘hypothetical’ guarantees, and the insurers’ statements mislead potential customers into assuming [that AutoWorks and Walker] do not guarantee their own work,” the appeals court said, quoting from the shops’ lawsuit. “AutoWorks and Walker also allege that Progressive’s steering is designed only to harm them and not serve any legitimate business interest of Progressive, which pays the same amount for repairs whether they are performed by preferred or non-preferred shops. We agree [that] AutoWorks and Walker have plausibly alleged that Progressive intentionally damaged their businesses with the malicious intent to injure them and without right or justifiable causes.”
That portion of the lawsuit was sent back to the lower court to proceed.
The only other good news for shops: Judge Presnell also ruled that the shops will not have to pay the legal fees sought by some insurers in the dispute. Back in 2017, for example, Geico asked the court to grant it more than $47,000 in fees the insurer said it had spent to that point fighting the version of the lawsuit brought by three Arizona shops. The insurer argued that the Arizona shops should have known even before their suit was filed that it would be dismissed because a nearly identical lawsuit already had been. Presnell said in 2017 he would put off ruling on the legal fees issue until appeals in all the cases were concluded.
This summer as the cases wound down, Presnell said the Arizona shops (as well as others in Oregon, Washington and California bringing similar suits) do not have to pay the legal fees sought by Geico. Because the appeals court partially overturned his dismissal to allow the two Mississippi shops’ steering complaints against Progressive to proceed, Presnell said he could not conclude the other shops brought their lawsuits in bad faith, and thus they do not have to cover Geico’s legal bills.
Class action lawsuit over scanning scaled back
An attempt at a national class action lawsuit over Geico’s alleged refusal to pay for pre- and post-repair scans has been scaled back this year to only include Oregon insureds and claimants. More than two years after the lawsuit was initially filed, a U.S. District Court judge ruled that state laws regarding “bad faith” vary too widely for drivers in all states to be included in the proposed class of plaintiffs.
Oregon shop owner Leif Hansen instead filed an amended version of his lawsuit against Geico — over the insurer’s refusal in 2017 to pay for pre- and post-repair scans of Hansen’s personal vehicle, which Geico insures — seeking to represent all Oregonians harmed by Geico’s “breach of the implied covenant of good faith and fair dealing.” Hansen said a post-repair scan of his truck (that he paid for after Geico wouldn’t) found unrepaired damage to a rear bumper sensor.
The suit says Hansen can point to other similar instances, such as a customer’s vehicle at one of his shops that had “airbag and steering system problems that could have been avoided had Geico authorized pre- and post-repair electronic scans to detect unresolved damage.”
The lawsuit says that scans cost approximately $100 each, so “at a minimum this damage amount applies to every relevant vehicle insured by Geico that has been repaired over the past six years,” meaning the total “amount in controversy exceeds $5 million.”
Geico’s brief that in March convinced the court that a national class action was inappropriate in the dispute included a footnote saying the insurers was not at that time moving to strike the Oregon-only class allegations, but that it intends to do so.
Court finds insureds can’t sue adjusters
By a narrow margin, the Supreme Court of Washington State last fall ruled that individual insurance adjusters cannot be sued for bad faith in that state, reversing an appeals court ruling on the issue.
The case involved a 2007 accident in which Allstate found motorist Moun Keodalah 70 percent at fault in an accident, thus awarding him only $1,600 of the $25,000 he sought for an uninsured motorist claim. He filed suit for bad faith and violations of the state’s Consumer Protection Act (CPA) against both Allstate and its adjuster, Tracey Smith. The lawsuit alleged that Smith “misrepresented facts [and] asserted facts that contradicted both her and Allstate’s investigation.”
The trial court dismissed Keodalah’s claims against Smith, but an appeals court reversed that decision.
But the state Supreme Court ruled 5-4 that the appeals court ruling was in error, that bad faith claims and CPA claims cannot be brought against individual adjusters. The “plain language” of the good faith law, the Supreme Court ruled, indicates that “the statute is intended to benefit the general public,” not insureds seeking to recover from adjusters.
“If we were to read the statute to imply a cause of action,” the Supreme Court added, that “would apply against insureds as well,” which would allow insurers to sue their policyholders for bad faith, not something lawmakers intended, the Supreme Court ruled. The CPA law only applies to insurance companies, not adjusters, the Court found.
Bad faith claims can be brought against adjusters in at least three states (Montana, Texas and West Virginia).
Other lawsuits conclude
There was resolution in a number of other legal battles Automotive Report has covered in the past.
A California shop owner late last summer reached an undisclosed settlement in his long-running multi-million-dollar legal battle with Sherwin-Williams. The dispute stemmed from John Tyczki’s use of the paint company’s AWX waterborne brand at his three San Diego area shops. In 2013, Sherwin-Williams filed suit against Tyczki’s company for breach of contract, claiming Tyczki halted use of Sherwin-Williams’ product before meeting purchase level agreements in his contract with the paint company (a contract that Sherwin-Williams said included a $275,000 “advance” payment to Tyczki’s company). Tyczki counter-sued, claiming the AWX line was defective, that Sherwin-Williams knew it, and that problems with the product forced the shops to rebuff and repaint dozens of vehicles (and potentially many more).
A jury in 2015 found both sides were in the wrong, agreeing that Tyczki’s business owed Sherwin-Williams about $374,000 for breach of contract, but that the paint company owed the shop $3.25 million for fraud and misrepresentation — thus a $2.8 million net judgment for Tyczki. The judge in the case overruled the jury, reducing Tyczki’s net verdict to just $260,000, but an appeals court reinstated the $2.8 million jury verdict, and sent the case back to the lower court to review Sherwin-Williams’ earlier motion for a new trial.
The two sides last summer negotiated a undisclosed settlement.
More recently, a federal appeals court this summer upheld a lower court’s ruling that found non-OEM parts distributor New World International had sold non-OEM crash parts infringing on 13 design patents held by Ford. In its appeal, New World had argued the U.S. District Court in Texas used improper rulings and jury instructions in the original trial in 2018.
The appeals court did not issue a written explanation for upholding the lower court’s ruling, which called for New World to pay $493,057 to the automaker as well as $2.1 million to cover Ford’s legal costs. •
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 (www.CrashNetwork.com). He can be contacted by email at john@CrashNetwork.com.