BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Michael J. Machado, Chair
SB 1371 (Correa) Hearing Date: April 16, 2008
As Amended April 9, 2008
Fiscal: No
Urgency: No
SUMMARY Would prohibit automobile insurers from capping offers
and payments for paint and materials charges, and would define
capping for that purpose, as specified.
DIGEST
Existing law
1. Prohibits an insurer from requiring that an automobile be
repaired at a specific automotive repair dealer;
2. Prohibits the insurer, if the insured chooses the auto repair
dealer, from limiting or discounting the reasonable repair costs
based on charges that would have been incurred had the vehicle
been repaired at the insurer's chosen shop, as specified;
3. Requires insurers to provide each insured with an Auto Body
Repair Consumer Bill of Rights, either at the time the insured
applies for an automobile insurance policy, or following an
accident or loss that is reported to the insurer, specifying
that the consumer is entitled to:
a. Select the auto body repair shop to repair auto body
damage covered by the policy. An insurance company shall not
require the repairs to be done at a specific auto body repair
shop;
b. Be informed about auto body repairs made with new OEM
crash parts, new aftermarket crash parts, and used crash
parts;
c. Be informed about coverage for towing and storage
SB 1371 (Correa), Page 2
services and the extent of coverage, if any, for a
replacement rental vehicle while a damaged vehicle is being
repaired;
d. Toll-free telephone numbers and Internet addresses for
reporting suspected fraud or other complaints or concerns
about auto body repair shops to the Bureau of Automotive
Repair (BAR);
4. Prohibits an insurer from knowingly committing, or performing
with such frequency as to indicate a general business practice,
specified unfair business practices;
5. Specifies that not attempting in good faith to effectuate
prompt, fair and equitable settlement of claims in which
liability has become reasonably clear is an unfair business
practice;
6. Provides the Insurance Commissioner (IC) power to enforce
violations of these provisions as unfair or deceptive acts and
impose a civil penalty not to exceed $5,000 for each act, or
$10,000 for each act if the act or practice was willful;
7. Provides for the licensing and regulation of auto body repair
shops by the Bureau of Automotive Repair in the Department of
Consumer Affairs.
Existing Regulations
1. Prohibits an insurer from attempting to settle a claim by
making a settlement offer that is unreasonably low;
2. Requires a written estimate for repairs prepared by or for the
insurer to be of an amount which will allow repairs to be made
in a workmanlike manner.
This bill
1. Would make a legislative finding that operators of auto
body shops are concerned that some insurance companies cap
or limit their offers and payments for paint and materials
charges, and that capping occurs when accepted industry
methodologies are misused when determining a reasonable
repair cost for paint and material charges, or a factually
unsupported limit is placed on these charges;
SB 1371 (Correa), Page 3
2. Would prohibit insurers from capping paint or material
charges in automobile repairs;
3. Would define capping for this purpose as offering or paying
an amount that is unrelated to an accepted industry
methodology used in determining paint and materials charges
or placing a factually unsupported limit for such charges.
COMMENTS
1. Purpose of the bill . To prevent automobile insurers from
unfairly limiting payments to auto body repair shops for paint
and materials charges. .
2. Background. The Department of Insurance (DOI) held at least
two "workshops" on the subject of paint and material "capping"
in 2006 and 2007, in response to numerous complaints from auto
body repair shops and consumers alleging inappropriate capping
by insurers of paint and material charges. For example, when
accepted industry methodologies such as Mitchell Ultramate, CCC
Pathways, or Audatex, that are used by both auto body shops and
insurers to determine a reasonable cost of repair, indicate that
$700 is the reasonable cost for paint and materials, and the
insurance company, as a standard practice, offers and limits
payment to $350.
The workshops were an effort to find common ground in order to
reduce the number of disputes and ensure that consumers are not
caught in the middle, left to pay the disputed amounts out of
their own pocket. Participants included the auto body repair
industry, auto body repair estimating software providers, auto
insurers, the BAR, the Legislature and the DOI. The DOI's
summary of the last workshop, dated September 4, 2007, defined
"capping" as "placing an arbitrary and artificial limitation on
the payment (or offer of payment) for the cost of "paint and
materials" charged by the auto body repair shop chosen to repair
a claimant's damaged automobile." That report noted that
insurers have coined several terms of their own to describe how
they handle paint and material charges, including "guideline,"
"threshold," and "internal guideline." The DOI expressed the
opinion that it is not the term that is used, but how it is
applied that determines whether an inappropriate cap has been
placed on a payment
There are two basic ways or methods used by auto body repair
SB 1371 (Correa), Page 4
shops to charge for paint and materials:
Material rate X Refinish Units or the
hourly-rate method: the amount charged for paint and
materials used in a repair is calculated by
multiplying the number of paint labor hours times a
specified hourly paint and materials rate. The hourly
rate method has been standard industry practice for
more than 30 years.
Refinish Material Calculator Method: all
materials used in the paint repair, including paint,
primer, epoxy, solvent, sandpaper, etc. are
specifically itemized. This is usually done with a
paint and material calculator software program.
The BAR has indicated that either method for calculating paint
and material costs is acceptable, as long as the amount being
charged is clearly indicated as a separate line item on the
estimate of repair and repair invoice, and the customer has
authorized the charge. Most insurers reportedly don't accept or
use the refinish material calculator method because the
software generally produces a higher cost.
The material rate X refinish method lists a specific number of
units for refinishing any given car part. If the total units in
a job totals 20 multiplied by a $35 rate for refinish amount for
materials, the total would be $700. Auto body repair shops
complain that some insurers will pay only $350 or $400 for paint
and materials, no matter how small or large the job. At that
point, the repair shop must either collect the difference from
the consumer or absorb the difference.
Some insurers claim that the $350 or $400 "cap" is actually an
internal threshold, and will agree to pay over and above that
amount, if the repair shop shows documentation. Auto body shops
respond that this is extremely impractical or downright
impossible, because auto painting is not as simple as buying a
can of pre-mixed paint and applying it to the vehicle. Painting
vehicles to match existing colors has become very complicated.
Basecoats contain different amounts of three to eight different
toners to create the correct color, depth, flop, sidecast, etc.
These toners are added together by formula into a can on a scale
by weight, not volume. Some toners are added in parts of a gram,
or by the drop. In addition to paint, hardeners, clearcoats,
adhesives, body fillers, plastic flex putty and many other
SB 1371 (Correa), Page 5
products and ingredients may be used to paint one car or part.
The auto body shops contend that they cannot account for the
cost of each material or item used on an individual job basis,
making it impossible for them to provide the documentation
required to be reimbursed above the "threshold" amount.
This bill is a result of the workshops, and subsequent
negotiations between the auto body industry, insurers and the
DOI. It is committee staff's understanding that the intent of
this bill is to have a clear provision that would not require
adoption of additional implementing regulations by the DOI.
1. Support . According to the California Autobody Association,
insurers have continued to arbitrarily "cap" or limited paint
and material charges by auto body shops chosen by claimants to
repair their vehicles, despite indications from the DOI as far
back as 1995 that it is illegal. SB 1371 would explicitly make
the practice illegal.
The Personal Insurance Federation of California (PIFC) supports
SB 1371 and its efforts to prohibit "capping." PIFC continues
to work with the automotive repair industry to finalize this
"work in progress" and remains committed to reaching consensus
on the outstanding issues related to this important measure.
State Farm Insurance supports the goal of SB 1371, but believes
it needs to be amended to delete the phrase "factually
unsupported limit" because it is inherently ambiguous and would
lead to more confusion, and a need for additional regulations.
State Farm also would like the bill to be amended to reflect
certain voluntary agreements it has with its "Select Service"
auto repair shops. Specifically, State Farm asks that "Capping
does not include voluntary pricing agreements entered into by
automobile repair shops and an insurer" be added to the bill.
The Collision Repair Association of California would also
support the bill if amended to delete the "factually unsupported
limit" language. That term could lead to instances where an
insurer utilizes selected data to document a limit unrelated to
the current cost accounting procedures recognized by insurers
and auto repair dealers.
2. Opposition None received.
3. Suggested Amendments .
SB 1371 (Correa), Page 6
a. On page 2, lines 5-6, Delete " or placing a factually
unsupported limit for these charges ."
b. Should the language requested by State Farm for
explicit reference to "voluntary pricing agreements" be
added to the bill?
POSITIONS
Support
California Autobody Association (Sponsor)
California New Car Dealers Association
Collision Repair Association of California (if amended)
Consumers for Auto Reliability and Safety
Personal Insurance Federation of California
State Farm Insurance (if amended)
Oppose
None received
Consultant: Erin Ryan (916) 651-4102