BILL ANALYSIS
SB 1371
Page 1
Date of Hearing: June 25, 2008
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
SB 1371 (Correa) - As Amended: June 18, 2008
SENATE VOTE : 38-0
SUBJECT : Insurance: Capping Repairs
SUMMARY : Prohibits insurers from engaging in "capping," which
is defined as offering or paying an amount unrelated to a
mutually accepted method of determining paint and materials
charges. Specifically, this bill :
1)Finds and declares the following:
a) There exist mutually acceptable methodologies for
automobile repair shops and insurers to determine the cost
of paint and related materials. These include manual and
estimating systems as well as software programs.
b) "Capping" occurs when the cost of paint and related
materials determined by any of the mutually accepted
industry methodologies is ignored by an insurer.
c) Pricing agreements involving discounts that are entered
into voluntarily between an automobile repair shop and an
insurance company constitute neither "capping" nor a
mutually accepted industry methodology used in determining
paint and material charges.
2)Prohibits insurers from engaging in "capping," defined as
offering or paying an amount that is unrelated to a mutually
accepted industry methodology used in determining paint and
materials charges.
EXISTING LAW:
1)Prohibits insurers from requiring that an automobile be
repaired at a specific automotive repair dealer.
2)Prohibits insurers from suggesting or recommending that an
automobile be repaired at a specific automotive repair dealer
unless:
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a) A referral is expressly requested by the claimant, or
b) The claimant has been informed in writing of the right
to select the automotive repair dealer.
3)Specifies that if the recommendation is accepted by the
claimant, the insurer shall cause the damaged vehicle to be
restored to its prior condition at no additional cost to the
claimant other than as stated in the policy or as is otherwise
allowed by law.
4)Specifies that if the recommendation is done orally, and if
the oral recommendation is accepted by the claimant, the
insurer must provide the following information at the time the
recommendation is made:
"We are prohibited by law from requiring that repairs be
done at a specific automotive repair dealer. You are
entitled to select the auto body repair shop to repair
damage covered by us. We have recommended an automotive
repair dealer that will repair your damaged vehicle. If
you agree to use our recommended automotive repair dealer,
we will cause the damaged vehicle to be restored to its
condition prior to the loss at no additional cost to you
other than as stated in the insurance policy or as
otherwise allowed by law. If you experience a problem with
the repair of your vehicle, please contact us immediately
for assistance."
5)Requires, additionally, that the insurer send the above-noted
written notice within 5 calendar days from the oral
recommendation.
6)Prohibits an insurer from suggesting or recommending that the
claimant select a different automotive repair dealer after the
claimant has chosen an automotive repair dealer, unless a
referral is expressly requested by the claimant.
7)Requires any insurer that, by insurance contract, suggests or
recommends that an automobile be repaired at a particular
automobile repair dealer shall also do both of the following:
a) Prominently disclose the contractual provision in
writing to the insured at the time the insurance is applied
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for and at the time the claim is acknowledged by the
insurer;
b) If the claimant elects to have the vehicle repaired at
the shop of his or her choice, the insurer shall not limit
or discount the reasonable repair costs based on charges
that would have been incurred had the vehicle been repaired
by the insurer's chosen shop.
8)Specifies that the Insurance Commissioner has the authority to
enforce this law pursuant to state laws that prohibit unfair
methods of competition and unfair or deceptive acts or
practices in the business of insurance.
FISCAL EFFECT : No fiscal effect.
COMMENTS :
1)Purpose of Bill. The purpose of this bill is to prevent
automobile insurers from unfairly limiting payments to auto
body shops for paint and materials charges.
2)Background. As early as November of 1995, staff counsel for
the DOI had stated that the practice by some insurers of
"arbitrarily capping or limiting" the costs of paint and
materials in regards to automotive repairs is illegal under
the Unfair Practices Act. That counsel pointed out several
provisions of law including one that makes it an unfair
business practice when: "Not attempting in good faith to
effectuate prompt, fair, and equitable settlements of claims
in which liability has become reasonable clear." (See
subdivision (h)(5) of Section 790.03 of the Insurance Code.)
The Department of Insurance (DOI) held two workshops in 2006
and 2007 on the subject of paint and materials "capping" by
auto insurers. These workshops were convened in response to a
significant number of complaints from auto body shop owners
and consumers who alleged inappropriate capping by insurers of
paint and materials charges. The workshops were an effort to
find common ground in order to reduce the number of disputes.
An example of a complaint was that the industry-accepted
methodology to determine costs would yield $700 in repair
costs but that the insurer would limit (cap) the payment at
$350.
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Participants in these workshops included representatives of
the auto body repair industry, auto body repair estimating
software providers, auto insurers, the state Bureau of
Automotive Repair, the Legislature, and DOI. DOI's summary of
the last workshop, dated September 4, 2007, defined "capping"
as placing an arbitrary and artificial limitation on the offer
and payment for the cost of paint and materials charged by the
auto body repair shop.
This bill is a result of the workshops and subsequent
negotiations among the auto body industry, insurers, and the
DOI.
3)Related Legislation. SB 1167 (Wiggins and Migden) requires
the Insurance Commissioner to convene a task force to review
the issues arising from implementing the law that prohibits
insurers from requiring automobiles to be repaired at
pre-designated auto repair shops. That bill was approved by
this Committee at its June 11, 2008 hearing.
4)Technical Amendments Recommended. The Author, the Department
of Insurance, the sponsor, and insurers have requested the
following two technical, clarifying amendments:
a) The bill prohibits "capping" by insurers and defines
that term in connection with determining paint and
materials charges. While the bill's legislative findings
address the topic of automobile repair shops and insurers,
the portion of the bill (Section 2) that prohibits
"insurers" from engaging in capping does not identify the
types of insurers affected. Since a variety of insurers
provide payments in connection with paint and materials
charges (including homeowners insurers, commercial
insurers, and marine insurers) and they are not intended to
be affected by this bill, it is recommended that Section 2
of the bill be amended as follows to clarify that the bill
affects only automobile insurance:
758.6. Insurers shall not engage in capping. For the
purpose of this section, "capping" means offering or
paying an amount that is unrelated to a mutually
accepted industry methodology used in determining
paint and material charges that is accepted by
automobile repair shops and insurers .
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a) The findings and declarations portion of the bill refers
to "methodologies mutually accepted" by automobile repair
shops and insurers to determine the cost of paint and
related materials. It is recommended that the word
"mutually" in the findings and declarations section of the
bill be deleted and that the remaining text is sufficient
to convey that the "methodologies are accepted by both
automobile repair shops and insurers."
REGISTERED SUPPORT / OPPOSITION :
Support
Bostrom's Collision Center (Livermore, CA)
California Autobody Association
California New Car Dealers Association
Carmat Collision Center, Inc.
Collision Repair Association of California
Support, as Proposed to be Amended
Association of California Insurance Companies
Personal Insurance Federation of California
Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086