BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:April 16, 2012 |Bill No:SB | | |1460 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Curren D. Price, Jr., Chair Bill No: SB 1460Author:Yee As Introduced: February 24, 2012 Fiscal:Yes SUBJECT: Automotive repair: replacement parts. SUMMARY: Revises and recasts the motor vehicle replacement parts law, defining certain terms related to crash parts; specifies that certified new non-OEM crash parts shall be presumed sufficient to return the motor vehicle to its pre-loss condition; requires a supplier who supplies a certified new non-OEM crash part to provide a written consumer warranty, as specified; requires crash parts to have an identification number and an electronic tracking system; revises the invoice and estimate requirements for automotive repair dealers. Existing law: 1)Establishes specific provisions relative to motor vehicle replacement parts (Chapter 20.1, of Division 2 of the Business and Professions Code (BPC), commencing with § 9875), including: a) Defines the following terms: (BPC § 9875) i) "Insurer" to include an insurance company and any person authorized to represent the insurer regarding a claim. ii) "Aftermarket crash part" is a replacement for any of the non-mechanical sheet metal or plastic parts which generally constitute the exterior of a motor vehicle, including inner and outer panels. iii) "Non-original equipment manufacturer (Non-OEM) SB 1460 Page 2 aftermarket crash part" means aftermarket crash parts not made for or by the manufacturer of the motor vehicle. b) Prohibits an insurer from requiring the use of Non-OEM aftermarket crash parts in a motor vehicle repair unless the consumer is advised in a written estimate of the use of Non-OEM aftermarket crash parts before repairs are made. (BPC § 9875.1) c) Requires where Non-OEM aftermarket crash parts are intended for use by an insurer: i) The written estimate must clearly identify each such part with the name of its non-original equipment manufacturer or distributor. (BPC § 9875.1 (a)) ii) A disclosure document must be given to the insured stating the following in 10-point type or larger attached to the estimate: (BPC § 9875.1 (b)) "This estimate has been prepared based on the use of crash parts supplied by a source other than the manufacturer of your motor vehicle. Any warranties applicable to these replacement parts are provided by the manufacturer or distributor of the parts, rather than by the original manufacturer of your vehicle." 2)Licenses and regulates more than 35,000 automotive repair dealers (ARDs) under the Automotive Repair Act (Act) by the Bureau of Automotive Repair (BAR) within the Department of Consumer Affairs (DCA). 3)Defines certain terms in the Act, including ARD, to mean a person who, for compensation, engages in the business of repairing or diagnosing malfunctions of motor vehicles. (BPC § 9880.1) 4)Requires all work done by an ARD to be recorded on an itemized invoice that describes all service work done and parts supplied, and requires the invoice to contain specified information. (BPC § 9884.8) 5)Requires an ARD to provide a customer with an itemized written estimate for parts and labor and to obtain authorization from the customer before performing work or charging for any work on SB 1460 Page 3 the customer's vehicle. (BPC § 9884.9) 6)Prohibits an ARD from charging a customer for work done or parts supplied in excess of the written estimate without first obtaining a customer's oral or written authorization. (BPC § 9884.9 (a)) 7)Requires an ARD performing auto body or collision repair work to identify whether each part is new, used, rebuilt, or reconditioned on the written estimate. The written estimate must also identify whether a crash part is an original equipment manufacturer (OEM) or non-original equipment (non-OEM) manufacturer crash part. (BPC § 9884.9 (c)) 8)Defines "auto body repair shop" as a place of business operated by an automotive repair dealer where automotive collision repair or reconstruction of automobile or truck bodies is performed. (BPC § 9889.51) Existing law, Department of Insurance Regulations (California Code of Regulations Title 10 Chapter 5, Subchapter 7.5, Section 2695.8 (g)): 1)Provides that no insurer shall require the use of Non-OEM replacement crash parts in the repair of an automobile unless: a) The parts are at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit, and performance; b) Insurers specifying the use of non-original equipment manufacturer replacement crash parts shall pay the cost of any modifications to the parts which may become necessary to effect the repair; c) Insurers specifying the use of non-original equipment manufacture replacement crash parts warrant that such parts are of like kind, quality, safety, fit, and performance as original equipment manufacturer replacement crash parts; d) All original and non-original manufacture replacement crash parts, when supplied by repair shops shall carry sufficient permanent, non-removable identification so as to identify the manufacturer. The identification must be accessible to the greatest extent possible after installation. SB 1460 Page 4 This bill: 1)Revises and recasts the motor vehicle replacement parts law, and defines certain terms, including: a) "Certified new non-OEM crash part" means a new non-OEM replacement crash part that: i) Has been certified by an American National Standards Institute (ANSI) accredited standards developer that develops and maintains a consensus of quality standards for competitive crash repair parts. ii) Is identified by a unique serial number or production lot number that enables full traceability through the certifying entity. b) "Replacement crash part" means a nonmechanical part made of sheet metal, aluminum, plastic, fiberglass, or a similar material generally used in crashed vehicle repair. This includes outer panels, hoods, fenders, doors, trunk lids, bumper parts (excluding bumper covers), and radiator supports, but does not include glass, wheel covers, or grilles. c) "Insurer" means an insurance company or any person authorized to represent the insurer. d) "New non-OEM crash part" means a replacement crash part manufactured or sold by an entity other than the OEM. e) "Original equipment manufacturer (OEM) crash part" means a replacement crash part manufactured or commissioned by a car company, for motor vehicles that the car company manufactures or distributes. f) "Recycled crash part" means a crash part removed from a vehicle. g) "Remanufactured or reconditioned crash part" means a recycled crash part that has been refurbished or restored to its original condition or appearance for use on another vehicle. 2)Prohibits the use of recycled, remanufactured or reconditioned OEM, new non-OEM, or certified new non-OEM crash parts in determining what an insurer will pay to repair a vehicle unless: SB 1460 Page 5 a) The insurer discloses in writing that parts other than OEM crash parts may be used to determine the amount to be paid to repair a vehicle in a manner sufficient to restore the vehicle to its pre-loss condition. b) The auto body repair shop discloses whether the replacement crash part to be used in the repair is: i) A recycled, remanufactured, or reconditioned OEM or certified new non-OEM crash part. ii) An OEM crash part. iii) A certified new non-OEM crash part. 3)Specifies that certified new non-OEM crash parts shall be presumed sufficient to return the motor vehicle to its pre-loss condition. 4)Requires a supplier who supplies a certified new non-OEM crash part to: a) Provide a written consumer warranty that equals or exceeds the car company's warranty provided for the OEM crash part. b) Use an electronic tracking system that tracks the manufacturer part number, lot number, and repair shop license number for recall purposes. c) Analyze any crash part returned as defective and report the defective part number, lot number, and nature of the defect to the manufacturer and to the certifying entity. d) Report annually to the BAR defect rates greater than 5 percent for certified new non-OEM crash parts, as specified. e) Provide the auto body repair shop with a service guarantee on any defective certified new non-OEM crash part which includes a full refund within 60 days. 5)Includes auto body repair shop in the definition of an ARD. 6)Requires the final invoice that the ARD presents to the customer to: a) Itemize each replacement crash part as an OEM, new non-OEM, certified new non-OEM, recycled, remanufactured, or reconditioned SB 1460 Page 6 crash part. b) Identify the supplier providing the warranty for each certified new non-OEM crash part, and the tracking information. c) Include the disclosure language set forth in subdivision (c) of Section 9884.9. d) List the unique identification information for any installed certified new non-OEM crash part. 7)When a certified new non-OEM crash part is installed, requires the ARD to transmit the tracking information to the entity that certified part in order to enable traceability. 8)Requires the written estimate to identify whether a replacement crash part is an OEM, certified new non-OEM, new non-OEM, recycled, remanufactured, or reconditioned crash part. 9)Requires the written estimate to disclose the replacement crash part warranty provided by the supplier. 10)Makes technical, clarifying and conforming changes. FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by Legislative Counsel. COMMENTS: 1.Purpose. This bill is sponsored by the Author who states: "SB 1460 would take current law a step further to ensure quality assurance, warranties and the ability to track crash parts; disclosures in insurance policies or other notices of the types of crash parts that may be used; disclosures in the estimate of the actual parts to be used; and disclosure in the final invoice of crash parts actually installed. Insurers specifying only certified crash parts for certain parts ensures the use of quality replacement parts at competitive prices. "This bill would give low income consumers an affordable safe alternative to expensive OEM parts. Consumers will also have peace of mind that certified, quality replacement crash parts are used when available, and that those parts are identifiable and will be traceable. The warranty requirement ensures that new SB 1460 Page 7 non-OEM crash part manufacturers and distributors are held to the same warranty standards as the original equipment manufacturers." According to the Author, the source of the bill is the Personal Insurance Federation of California (PIF). Representing a number of insurance companies (State Farm, Farmers, Liberty Mutual Group, Progressive, Allstate, Mercury), PIF states that the bill does three things: (1) provides incentive for insurance companies to pay for higher-quality replacement parts; (2) encourages insurance companies to pay for replacement car parts that are easier to track and recall, which improves the accountability of replacement part makers; (3) requires suppliers of Non-OEM replacement parts to provide new consumer warranties, in addition to existing consumer protections. 2.Background. "Crash parts" or "body parts" are parts generally made of sheet metal, plastic, or glass that constitute the exterior of a motor vehicle and tend to serve a cosmetic function. Examples of crash parts include bumper reinforcements and absorbers, hoods, fenders, door shells, rear outer panels, deck and trunk lids, quarter panels, truck beds and box sides, body side panels, tailgates, and lift gates. OEM crash parts are made by the manufacturer of a given motor vehicle for use on that vehicle (e.g., a hood made by Ford for a Ford vehicle). Non-OEM parts, on the other hand, are duplicate parts made by an independent manufacturer that is generally not affiliated with the motor vehicle manufacturer. Non-OEM manufacturers must "reverse-engineer" the replacement parts because they do not have access to the OEM manufacturer's specifications for a given part (because this information is proprietary). Non-OEM crash parts typically cost 20% to 65% less than OEM crash parts. 3. ANSI Accreditation. This bill defines "certified new non-OEM crash part" as a new non-OEM replacement crash part that has been certified by an ANSI accredited standards developer that develops and maintains a consensus of quality standards for competitive crash repair parts. The part is identified by a unique serial number or production lot number enabling full traceability through the certifying entity. The ANSI is a private, non-profit organization that administers and coordinates the U.S. voluntary standards and conformity assessment system. ANSI is not itself a standards developing organization, but rather ANSI oversees the creation, SB 1460 Page 8 promulgation, and use of thousands of standards, guidelines, and conformity assessment activities that directly impact businesses and consumers in numerous industries and product lines. ANSI's role in the conformity assessment arena includes accreditation of organizations that certify that products and personnel meet recognized standards; accreditation of organizations providing third-party validation or verification to bodies engaged in the reduction and removal of greenhouse gases; and accreditation of certificate programs for organizations that issue education and training certificates to U.S. workers. ANSI accredited standards have been cited in California law relating to a variety of specification standards, including those for: carbon monoxide devices (Health and Safety Code (HSC) § 13262); swimming pool antientrapment devices (HSC § 116064.2); pipe, pipe or plumbing fitting or fixture, solder, or flux (HSC § 116875); garage door openers (HSC § 19890); food handler safety standards (HSC § 113948); safety of recreational vehicles (HSC § 18027.3); gas fired appliances (HSC § 114301); hydrogen fuels for combustion engines (BPC § 13446). If this bill were enacted, ANSI accredited organizations seeking to certify new non-OEM parts might include: the Certified Automotive Parts Association (CAPA), a non-profit organization that certifies the quality of new non-OEM parts for use in collision repairs; and NSF International , a not-for-profit organization that provides standards development, product certification, auditing, education and risk management relating to public health and the environment, and which, according to PIFC, also provides a certification system for new non-OEM parts. 4. Related Legislation. There have been a number of Legislative efforts involving a variety of issues with automobile crash parts and repairs in recent years. Stakeholders including, the insurance industry, automobile manufacturers, parts manufacturers, parts certifiers, automobile dealers, the auto body repair industry, and consumer safety organizations have brought a divergent range of interests to the table. Some of the significant bills have been the following: AB 2505 (Ma, 2012) in the current legislative session, defines SB 1460 Page 9 "certified aftermarket crash part" as a replacement crash part that has been certified by an ANSI accredited standards developer that develops and maintains quality standards for competitive crash repair parts, and that is identified by a unique serial number on the part that enables its full traceability through the ANSI certifying entity. This bill is awaiting hearing in the Assembly Business, Professions and Consumer Protection Committee. SB 350 (Yee, 2010) would have prohibited the use of Non-OEM crash parts unless specified requirements are met, including that the parts are at least equal to the OEM parts in terms of kind, quality, safety, fit, and performance, and are warranted by the insurer to do so; the insurer pays the cost of any part modifications necessary for the repair; and all aftermarket crash parts (both OEM and Non-OEM) contains a specified identification when supplied by auto body repair shops. That bill was ultimately withdrawn by the Author and died in the Assembly Business, Professions and Consumer Protection Committee. SB 427 (Negrete McLeod, 2010) would have increased the penalty from $1,000 to $5,000 for failing to repair an air bag; made it a misdemeanor for an ARD who prepares a written estimate for repairs that includes replacement of a deployed airbag and who fails to repair and fully restore the airbag to original operating condition. The bill was vetoed by the Governor citing that the bill was largely duplicative of existing law and provided consumers very little additional benefit. SB 1371 (Correa, Chapter 526, Statutes of 2008) prohibited insurers from engaging in "capping," defined as paying an amount that is unrelated to a methodology used in determining paint and materials charges that is accepted by automobile repair shops and insurers. AB 2825 (Carter, 2008) would have authorized a customer to receive copies of invoices from the distributor, dealer or manufacturer for all crash parts installed in excess of $50; required the written estimate and the final invoice to include a notice stating that installing parts other than those described on the estimate without the customer's prior approval is unlawful; and required copies of crash part invoices, if requested by the consumer, to be attached to the final invoice. That bill was vetoed by the Governor citing that the bill was duplicative of existing law and therefore unnecessary. SB 1460 Page 10 AB 1483 (Carter, 2007) would have required an ARD, once repairs are completed, to provide a written affirmation to the customer on the first page of the final invoice that the parts identified on the estimate are the parts that were installed on the vehicle during repair. That bill was vetoed by the Governor citing that it was duplicative of existing law and therefore unnecessary and that the provisions may lead to increased expenses and decreased efficiency at automotive repair dealers. AB 1852 (Yee, 2006) would have established a "licensed certifier" as an independent entity, licensed by the Department of Consumer Affairs, to certify a part as a "certified collision repair part," if it is of like kind and quality to a car company collision repair part. That bill was referred to Assembly Business and Professions Committee, but this language was deleted from the bill and was amended into a different subject matter before being heard by that Committee. AB 1163 (Yee, 2005) would have provided that a "certified aftermarket crash part," not manufactured by the original equipment manufacturer (OEM) of the vehicle for which the aftermarket crash part is being used to repair, is of like kind and quality to an OEM aftermarket crash parts, and requires manufacturers or distributors of the non-OEM parts, and insurers, to warrant non-OEM certified aftermarket crash parts. That bill died in Assembly Business and Professions Committee. 5. Arguments in Support. Writing in support of the bill, the Personal Insurance Federation of California (PIF) indicates that one way to reduce the cost of auto repairs is to use parts not made by the original car-maker (Non-OEM parts). Using OEM parts can be much more expensive than finding an "after- market" or "new non-OEM" alternative. In fact, when body shops repair a car that is not insured and which will be paid solely out of the customer's pocket, they frequently provide a new non-OEM alternative to make the repair affordable. Insurers make the same calculation and look for appropriate opportunities to use new non-OEM parts, recognizing there are many instances where OEM parts may be the best solution. PIF argues that this measure does not address safety parts used in vehicle repairs but cosmetic crash parts which are non- mechanical, non-safety parts used on the exterior of the vehicle, such as the SB 1460 Page 11 outer panels, hoods, fenders, doors, trunk lids, and bumper parts. PIF cites the Insurance Institute for Highway Safety 1987 Status Report, stating these parts "don't affect vehicle strength in a collision and are irrelevant to crash safety." Given the non-safety nature of crash parts, consumers and insurers purchase many new Non-OEM replacement parts with less concern than they would if safety was involved, according to PIF. According to PIF, in recent years several insurers have leaders in efforts to provide a quality assurance process for new non-OEM parts. PIF indicates its involvement in the Certified Automotive Parts Association (CAPA), a non-profit organization that certifies the quality of new non-OEM parts for use in collision repairs. PIF indicates that CAPA, along with NSF International have developed rigorous crash part manufacturing and testing standards. PIF members believe that a robust certification system has improved the quality of new non-OEM parts, and is a direct answer to criticisms about "imitation" replacement parts. However, PIF believes that more can be done to provide incentives to insurers to pay for certified new non-OEM parts, which are typically more expensive than non-certified parts. Allstate Insurance Company (Allstate) supports the bill stating that at the national level, Allstate has supported a certification system to assure the quality of non-safety crash parts used to repair insured vehicles, and supports this even more rigorous system that provides for the tracking of any defective crash parts used in automotive repair for greater accountability here in California. In addition, the cost efficiencies resulting from the use of certified after-market crash parts will result in more vehicles being repaired, as opposed to being "totaled," according to Allstate. 6. Arguments in Opposition. The California Autobody Association (CAA) argues that the bill takes the wrong approach to addressing issues surrounding non- OEM crash parts. CAA contends the bill would eliminate the current Department of Insurance regulation (CCR § 2695.8 (g)) which requires insurers who compel consumers to accept non-OEM crash parts to warrant the parts are of "like kind, quality safety, fit and performance" as OEM crash parts. CAA sates that the bill shifts all insurer warranty responsibility of non- OEM crash parts to repair shops and third party suppliers. More importantly, according to CAA, the bill creates a "new legal presumption" that all certified crash parts are presumed sufficient to return the motor vehicle to its pre-loss condition, even though SB 1460 Page 12 the non-OEM certified crash part may not fit properly or is defective. CAA indicates that the bill would also extend to third party claimants, even though they may not have a contract with that particular insurer. CAA argues that the bill creates new crash part standards and requirements but does not designate a consumer protection agency to regulate, enforce and oversee this new program. CAA contends the bill places unnecessary administrative burdens on auto body shops by requiring that a repair shop identify each part's supplier and provide each part supplier's warranty to its customers. Furthermore, the bill requires that the repair shop transfer any "unique identification information" to the final invoice for tracking purposes and upon installation of the part, the repair shop must submit such information to the certifying entity, according to CAA. California New Car Dealers Association (CNCDA) opposes the bill stating the bill "provides a presumption that 'certified' imitation crash parts are sufficient to restore a vehicle to pre-loss condition despite the fact that such parts do not meet the same standards as the parts originally installed on the vehicle (automaker parts)." CNCDA questions how this statutory presumption will affect existing Department of Insurance regulations which prohibit manufacturers from requiring the use of non-OEM crash parts if not of like kind, quality, safety, fit and performance as automaker crash parts. CNCDA argues the bill misleads consumers into believing that "certified" parts are equivalent to automaker parts, despite the contrary finding by BAR in a 2003 report, and the practical experience of thousands of body shops in California. The bill would outsource consumer protection to CAPA, which CNCDA contends (according to ANSI's website) is the only entity certifying non-OEM crash parts. "SB 1460 would deem CAPA certified parts sufficient to return the vehicle to pre-loss condition even if the part is not of like kind, quality, safety, fit or performance as the automaker part." CNCDA believes that by creating definitions for new categories of parts in the Automotive Repair Act, and creating new disclosure requirements during the vehicle repair estimation and invoicing process, the bill will inject unnecessary confusion and compliance concerns for California's well-regulated vehicle repair industry. Finally, CNCDA argues that although proponents of SB 1460 argue that it will reduce insurance costs, nothing in the bill requires SB 1460 Page 13 insurance companies to give policyholders a rate reduction for the use of non-OEM crash parts. Consumer Attorneys of California (CAOC) writes that the bill greatly weakens existing protections regarding the repair of motor vehicles under automobile indemnity insurance policies. CAOC contends the bill would change the meaning of "imitation" car part by greatly expanding the types of parts insurers may use to repair a vehicle and would eliminate any meaningful standards for producing these parts. The bill creates an unprecedented legal presumption that an insurer has met its contractual obligation to return a vehicle to its pre-loss condition if a certified non-original equipment manufactured part is used, according to CAOC, who further states, "Not even parts produced by original equipment manufacturers receive that legal presumption." CACO argues that the bill would significantly weaken existing disclosures meant to protect consumers, and make California's disclosures the weakest in the country. 7. Policy Issues . A central policy issue in this bill is the apparent shift in the responsibility for repairing a consumer's vehicle from the insurer to the parts manufacturer or to the auto body repair shop. As stated in this analysis, ("This bill" Item # 3 above), the bill specifies that certified new non-OEM crash parts shall be presumed sufficient to return the motor vehicle to its pre-loss condition. Existing Department of Insurance regulations (see "Existing law" above) mandates that if an insurer requires the use of Non-OEM replacement crash parts in the repair of an automobile, the parts must be at least equal to the OEM parts in terms of kind, quality, safety, fit, and performance, and that the insurer must pay for any modifications to the parts which may become necessary to effect the repair, and that the insurer must warrant that the parts are of like kind, quality, safety, fit, and performance as OEM replacement crash parts. This bill shifts that responsibility to the manufacturer, the parts certifier, and ultimately to the auto body repair shop. The Committee should consider whether this is an appropriate policy change, and whether this increases or decreases the protections to the consumer. NOTE : Double-referral to Judiciary Committee second. Any amendments proposed to this bill in committee should be made in the Judiciary Committee. SB 1460 Page 14 SUPPORT AND OPPOSITION: Support: Personal Insurance Federation of California (Sponsor) Allstate Insurance Company Opposition: Alliance of Automotive Manufacturers Association of Global Automakers, Inc. California Autobody Association California New Car Dealers Association Consumer Attorneys of California Consumer Federation of California Consultant:G. V. Ayers