BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1200 (Hayashi) Hearing Date: July 1, 2009
As Amended: June 25, 2009
Fiscal: No
Urgency: No
SUMMARY Would significantly revise and recast California's auto
repair anti-steering law duties, obligations and allowed conduct
for insurance companies, relative to consumers and other parties
in the claims settlement process, and will eliminate the duty to
provide a written notice of a consumers right to select an auto
body shop to a consumers who has not solicited a body shop
referral nor indicated a willingness to accept the insurer's
recommendation. The bill makes findings and declarations which
may affect currently pending regulatory matters and future
litigation, which the bill anticipates.
DIGEST
Existing statutory law: California Insurance Code (CIC) Section
758.5
1. Prohibits an insurer from requiring that an automobile
be repaired at a specific automotive repair dealer.
2. Prohibits an insurer from suggesting or recommending
that an automobile be repaired at a specific automotive
repair dealer unless:
a. The claimant requested the referral, or
b. The claimant is informed, in writing, of their
right to select the automotive repair dealer.
3. Requires that if a claimant accepts an insurer
recommendation, the insurer shall cause the damaged vehicle
to be restored to its condition prior to the loss at no
additional cost to the claimant other than as stated in the
policy or as allowed by law. If an automotive repair
dealer recommendation is done orally and accepted, the
insurer shall provide a notice of specified content to the
claimant at the time the recommendation is made. The
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1200 (Hayashi), Page 2
required written notice required shall be sent or provided
within five calendar days from the oral recommendation.
4. The written notice, in no less than 10-point type,
informs the claimant that the insurer is prohibited from
requiring that repairs be done at a specific automotive
repair dealer and that the claimant is able to select the
auto body repair shop which will repair the damage covered
by their insurance policy. The disclosure states that the
insurer has recommended an automotive repair dealer to
repair the claimant's vehicle and if the claimant agrees to
its use, the insurer will cause the damaged vehicle to be
restored to its condition prior to the loss at no added
cost to the claimant except as stated in the policy or
allowed by law.
5. Prohibits an insurer, after the claimant has chosen an
automotive repair dealer, from suggesting or recommending
that the claimant select a different automotive repair,
unless a referral has been expressly requested by the
claimant.
6. Requires any insurer that in its insurance contract
suggests or recommends that an automobile be repaired at a
particular automotive repair dealer must:
a. Requires the insurer to disclose the contract
provision prominently in writing at the time the
insurance is applied for and at the time a claim is
acknowledged by the insurer.
b. Prohibits such insurer, if a claimant elects
to have the vehicle repaired at the shop of his or her
choice, from limiting or discounting the reasonable
repair costs based on charges that would have been
incurred had the vehicle been repaired by the
insurer's chosen shop.
7. Authorizes the Commissioner to enforce this section
using his or her powers, including those powers granted to
the Commissioner in the Unfair Practices Act.
Existing Regulatory Law: DOI Regulations Pending to Implement
CIC Section 758.5
Pursuant to the authority provided in item 7 above, the
Insurance Commissioner has proposed a pending regulation
AB
1200 (Hayashi), Page 3
entitled "Insurer Recommendations of Automotive Repair
Dealers". (described in Comments 3 to 8 below) The
proposed regulation will implement Section 758.5 of the
Insurance Code (as added by Chapter 791, Statutes of 2003,
S.B. 551, Speier) and states its purposes are to "benefit
consumers by giving them a better understanding of their
rights and implement Section 758.5 according to the intent
of its authors. "
This bill
1. Proposes uncodified legislative "Findings and
Declarations" to the effect that:
a. Claimants benefit from being fully informed
regarding the benefits and services offered by insurance
companies as part of the claims process.
b. These benefits and services include, but are not
limited to:
i. Policy terms regarding repair warranties,
ii. The type of replacement parts used in the
repair,
iii. The anticipated time to repair the
vehicle,
iv. The anticipated costs associated with the
repairs, and
v. The quality of the workmanship which are
enumerated
c. Such information about the benefits and services
offered by insurance companies allows claimants to make
meaningful choices regarding the repair process and the
automotive repair dealer to be used.
d. Insurers should present that information in a
truthful and nondeceptive manner.
2. Adds to the Insurance Code's anti-steering in auto body
repair law a new subdivision to the effect that"An insurer
may provide the claimant with specific truthful and
nondeceptive information regarding the services and
benefits available to the claimant during the claims
process pursuant to the policy. This may include, but is
AB
1200 (Hayashi), Page 4
not limited to, information about the repair warranties
offered, the type of replacement parts to be used, the
anticipated time to repair the damaged vehicle, and the
quality of the workmanship available to the claimant.
3. Eliminates the prohibition of current law that no insurer
shall suggest or recommend that an automobile be repaired
at a specific location or dealer unless the claimant has
either requested a referral, or they have been given a
statement in writing of their right to select the
automotive repair dealer to instead provide that the
insurer is not required to inform a claimant of this right
in writing if it is provided orally.
4. In addition, the requirement of an insurer to not provide
a suggestion or recommendation of an automotive repair
dealer except upon request or without informing a claimant
of their right to select a the automotive repair dealer is
made subject to the new authorization for insurers,
described in paragraph 2 above, to provide "information
regarding the services and benefits available to the
claimant during the claims process pursuant to the policy"
5. Recasts the prohibition on an insurer, after the claimant
has chosen an automotive repair dealer, from suggesting or
recommending that the claimant select a different
automotive repair unless a referral has been expressly
requested by the claimant so that such suggestions or
recommendations would be permitted as part of providing the
information regarding the services and benefits available
to the claimant described in paragraph 2 above.
6. States that the changes made by the act enacted during
the 2009-10 Regular Session that amended this Section shall
only apply to actions filed on or after January 1, 2010.
COMMENTS
1. Purpose of the bill According to the author, AB 1200 is
intended to ensure that drivers can make an informed choice
when selecting an auto repair facility by clarifying that
insurers can explain the benefits of their own repair
programs to consumers.
2. Information provided by the author states:
AB
1200 (Hayashi), Page 5
a. Current law prohibits auto insurers from
requiring drivers to use a particular repair facility
for repairs to a damaged vehicle.
b. This law is intended to prevent insurance
companies from "steering" or otherwise preventing a
driver from having auto repairs done at a repair
facility of his or her choice.
c. Auto insurance companies often contract with a
network of trusted auto repair facilities or direct
repair program (DRP) to provide repairs for the
insurance company's claimants. Some benefits of a DRP
may include warranties on repair work, guaranteed
prices, streamlined repair process, and on-site car
rental.
d. Some body shop owners want to keep consumers
in the dark about their auto repair options by
prohibiting insurers from providing information about
alternatives, including the benefits of an insurer's
DRP.
e. AB 1200 seeks to ensure that every consumer
can make an informed choice by balancing the need for
claimants to 1) understand the benefits of an auto
insurance policy, including the benefits that DRPs
provide, and 2) be free to choose an auto repair
facility without auto insurer coercion.
f. When this issue has arisen in other states,
courts have strongly outlined the benefits of informed
consumer choice and the First Amendment protections
afforded commercial free speech. In the leading
decision, Allstate v. Abbott, 495 Fed.3rd 151 (2007) ,
the Fifth Circuit Court of Appeals overturned a Texas
law that prohibited an insurer from recommending
policyholders have their vehicles repaired at an
insurer-owned body shop. Relying on a long line of
commercial free speech cases, the court said:
Consumers benefit from more, rather than less,
information. Attempting to control the outcome of
the consumer decisions following such
communications by restricting lawful commercial
speech is not an appropriate way to advance a
AB
1200 (Hayashi), Page 6
state interest in protecting consumers.
3. Background on DOI's current regulatory process While AB
1200 states that the changes it makes "shall only apply to
actions filed on or after January 1, 2010, the clearest
immediate context where the changes proposed by AB 1200
will have significant impact is with respect to a set of
pending regulations which the California Department of
Insurance states are necessary to implement, interpret, and
make specific the Section of law which AB 328 proposes to
amend.
4. DOI's Proposed Regulation As currently proposed, the
regulation, entitled "Insurer Recommendations of Automotive
Repair Dealers" reads as follows:
Proposed Text
Regulation Implementing and Interpreting Insurance
Code 758.5
California Code of Regulations, Title 10, Chapter 5,
Subchapter 9, Article 7.5, Section 2698.93
ARTICLE 7.5. - Insurer Recommendations of Automotive
Repair Dealers
Section 2698.93 (a) This article applies to any claim
in which an insurer may be required to provide
benefits for repair of a motor vehicle pursuant to a
policy of insurance as defined by section 660 of the
Insurance Code. For purposes of this article
"claimant" means a first-party claimant or insured, or
a third-party claimant who asserts a right of recovery
for automotive repairs under an insurance policy
(b) Except when a referral is expressly requested by
the claimant, after a claimant has chosen an
automotive repair dealer, the insurer shall not
suggest or recommend that the claimant select a
different automotive repair dealer.
(c) For purposes of subdivision (b), a claimant has
chosen an automotive repair dealer when the claimant
has specified to the insurer a specific automotive
repair dealer registered with the Bureau of Automotive
Repair pursuant to sections 9884 and 9889.52 of the
Business and Professions Code which he or she wishes
to repair the vehicle.
(d) For purposes of subdivision (b), an insurer
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1200 (Hayashi), Page 7
suggests or recommends that the claimant select a
different automotive repair dealer when the insurer,
whether orally or in writing, communicates information
to the claimant which is relevant only to the choice
of the automotive repair dealer. Suggesting or
recommending includes, but is not limited to, the
following:
(1) Communication regarding the insurer's direct
repair program or its list of approved automotive
repair dealers.
(2) Communication regarding the quality of the
chosen automotive repair dealer.
(3) Communication regarding the quality of an
automotive repair dealer other than the chosen
dealer.
(4) Communication which identifies an automotive
repair dealer other than the automotive repair
dealer chosen by the claimant, unless expressly
requested by the claimant.
(e) Nothing in this article restricts the ability of
an insurer to explain contractual provisions of the
insurance policy to the claimant, including the
insurer's obligation to pay only costs that are
reasonably necessary to restore the damaged vehicle
to its pre-accident condition.
NOTE: Authority cited: Section 758.5, Insurance
Code. Reference: Section 758.5, Insurance Code.
5. DOI states Regulation's Goal is Reducing Steering
Disputes According to the DOI website, the need for the
regulation has arisen because insurance companies and
automotive repair dealers clash over what information
insurers can tell claimants, and when the information can
be told. The DOI states the purpose of the regulation is to
clarify the type of information which can be disclosed by
an insurance company to a claimant, and when the
information may be disclosed. By clarifying when an
insurance company may provide a claimant a referral, and by
clarifying what communication constitutes a referral, the
DOI intends that this regulation will reduce the conflict
between insurance companies and automotive repair dealers
in interpreting Section 758.5.
6. DOI Regulation Seeks to further Current Law & its Intent
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1200 (Hayashi), Page 8
The DOI states the improved clarity and understanding that
will ensue from regulations adopted in furtherance of its
express power to enforce this law will enable insurance
companies to benefit consumers by giving them a better
understanding of their rights and by implementing Section
758.5 "according to the intent of its authors."
7. Relationship of the Proposed DOI Regulation and AB 1200
As set out in paragraph 4 above, the proposed regulation
appears to offer useful guidance and bright line rules for
claimants, insurers and automotive repair shops to narrow
possible disputes.
Since the Insurance Commissioner's proposed regulation is
primarily focused on the period of time after a claimant
has exercised their right to choose an automotive repair
dealer , the provision of AB 1200 that eliminates an
insurer's duty to inform a claimant in writing of their
right to select a body shop in advance of their selection
if the insurer suggests or recommends a shop has the
potential to open a new front for insurer/body
shop/claimant disputes.
(Note: Reference above to "the provision of AB 1200 that
eliminates an insurer's duty to inform a claimant in
writing of their right to select a body shop" refers to the
effect of the change on page 4, line 29, where the
insertion of "orally" in effect eliminates the protection
current law gives consumers that if they have not sought a
referral, they must receive a written statement of their
right to have their automobile repaired at an automotive
repair dealer of their choice.)
8. DOI Process and revised "Legislative Intent" As
described in the "This Bill" portion of the analysis, SB
1200 both recasts the current provisions of Section 758.5
and includes numerous uncodified Legislative Findings and
Declarations. These provisions will, in effect, rewrite
the "intent" of the Section which the DOI Regulations is
expressly seeking to implement.
9. Legislative Findings and Declarations are not typically
codified, yet they can carry great weight when matters of
legislative construction and intent are before the courts.
Accordingly, since AB 1200 as most recently amended
expresses a clear intent that the "changes to Section
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1200 (Hayashi), Page 9
758.5" enacted this year are to apply to actions filed on
or after January 1, 2010, and since these same amendments
provide significant legislative findings that align closely
with the statutory revisions, it appears likely some legal
action regarding the meaning and proper construction of
Section 758.5, including its underlying intent is expected
or anticipated.
10. Written Notice of Consumers Right to Select Repair
Facility is Key Protection in Current Law Under existing
Insurance Code Section 758.5, insurers are prohibited from
suggesting or recommending that an automobile be repaired
at a specific automotive repair dealer unless either the
claimant requested the referral, or is informed, in
writing, of their right to select the automotive repair
dealer. Under current law, the purpose of the writing is a
protective one. It ensures that a consumer knows that even
if their insurer offers a suggestion or a recommendation as
to a body shop for the repair of a claimant's vehicle, they
retain a clear and unmistakable right to choose a repair
facility. As described in point 3 of the description of
"This bill" above, AB 1200 will eliminate the requirement
for this protective written notice for claimants who have
not solicited a referral nor accepted an insurer's
recommendation because oral notification can be
substituted.
11. Support . According to the Personal Insurance Federation
of California (PIFC) which supports this bill and is its
sponsor, existing law prohibits auto insurers from forcing
a driver to a particular auto repair facility, but fails to
ensure that drivers get a complete picture of their auto
repair options. AB 1200 guarantees that drivers can make
an informed choice when selecting an auto repair facility.
12. The PIFC states Insurance Code Section 758.5 prohibits
auto insurers from requiring a claimant to use a specific
auto repair facility. According to the PIFC, Senator
Speier declared that her measure would "eliminate the
insurance industry practice of 'steering' auto body repair
work, which occurs when an insurer prevents a consumer from
having auto body repairs done at a repair shop preferred by
the consumer." Auto insurers do not object to this law.
However, PIFC believes some body shop owners want to use
the current law to keep customers in the dark about their
auto repair options so as to deprive them of an informed
AB
1200 (Hayashi), Page 10
choice about alternatives, including an auto insurer's
"direct repair program (DRP)." A DRP is a network of
vetted body shops that operate under contracts covering
warranties, guaranteed prices, experience and service.
13. The PIFC states that when this issue has arisen in other
states, courts have strongly outlined the benefits of
informed consumer choice. In the leading decision,
Allstate v. Abbott, 495 Fed.3rd 151 (2007), the Fifth
Circuit Court of Appeals overturned a Texas law that
prohibited an insurer from recommending policyholders have
their vehicles repaired at an insurer-owned body shop.
Relying on a line of commercial free speech cases, PIFC
reports the court said:
Consumers benefit from more, rather than
less, information. Attempting to control
the outcome of the consumer decisions
following such communications by restricting
lawful commercial speech is not an
appropriate way to advance a state interest
in protecting consumers.
14. PIFC believes AB 1200 will ensure that every
consumer can make an informed choice of auto
repair facilities by providing an appropriate
balance of the need for claimants to 1)
understand the benefits of an auto insurance
policy, including the benefits that DRPs may
provide, and 2) the consumers freedom to choose
an auto repair shop without auto insurer
coercion.
15. The Association of California Insurance
Companies (ACIC) supports AB 1200 to ensure that
consumers have all the information they need to
make an informed choice.
16. Opposition The California Autobody Association
(CAA) states it is very concerned that AB 1200,
as proposed, would instead allow insurers to
legally "steer" the insured or claimant to an
insurer preferred repair shop even after an
informed consumer has clearly made a choice as to
where the vehicle should be repaired. The CAA
believes that consumers should have meaningful
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1200 (Hayashi), Page 11
choice; that insurers should not disparage the
consumer's choice of repair shop and that
consumers be fully informed of all benefits
provided by their auto body repair shop.
17. The California New Car Dealers Association
(CNCDA) is opposed to AB 1200 which it says "will
neuter an important consumer protection statute"
and open the door for insurers to "steer"
consumers to repair shops that have contractually
agreed to save insurers money by following
insurer limitations on the manner in which
vehicles are repaired. The CNCDA also states
that AB 1200, while apparently innocuous on its
face, "is in reality a Trojan horse that would
allow insurers to engage in communications that
the Legislature sought to prohibit with the
enactment of Insurance Code Section 758.5.
Although insurers claim to have the consumers'
best interests in mind, it is the bill's adding
the "ability of an insurer to explain benefits"
despite a consumer's having already announced a
preference for a particular body shop that would
give insurers the license sell their own program
and to disparage or "damn with faint praise" the
choice of body shop made by the consumer."
18. Consumer Watchdog , which opposes the bill
states "the bill as currently drafted might be
cited by insurers as evidence of the ability to
flout other aspects of California's anti-steering
laws. California law prohibits insurers from
requiring that a claimant have their car repaired
at a specific auto repair facility or from
steering claimants to a particular shop. We are
concerned that the language of your bill,
declaring that insurers may explain the terms of
the contract to their policyholders, would be
used by some insurers in court to block
policyholder claims that companies improperly
attempted to steer customers to certain
bodyshops."
19. Collision Repair Association of California
(CRA), states it strongly opposes AB 1200,
characterizing the most recent amendments as
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1200 (Hayashi), Page 12
deceptive and harmful to the benefits of consumer
choice. THE CRA suggests that AB 1200 be revised
to add just one statement to Insurance Code
Section 758.5., "Nothing in this section shall
preclude the insurer from discussing terms of the
policy with the claimant." THE CRA asserts this
bill is crafted "so that insurers do not have to
reveal to claimants that the shop recommended by
the insurer has a commercial business agreement
with the insurer. These agreements affect the use
of factory parts and repair processes. If
claimants knew these provisions, many would not
take the insurer's recommendation. Instead, this
bill allows insurers to discuss the benefits to
the insurer and not those that might compromise
the value of the vehicle after it is repaired."
20. The Consumer Attorneys of California (CAOC)
state that the statute which is proposed to be
amended by AB 1200 is one that is currently
subject to pending litigation. The CAOC requests
that AB 1200 be amended to provide that "Nothing
in this section restricts the ability of an
insurer to explain benefits the insurer provides
as part of the claims process, provided that the
insurer's explanation or the benefit provided are
not in conflict with any provision of law,
including but not limited to subdivisions (a)
through (d) of Section 758.5 of current law.
21. Monte Etherton of Fender Mender, Inc . is
opposed to AB 1200, stating if AB 1200 is
approved as amended, consumers will no longer be
able to simply choose my shop without their
respective insurer trying to convince them to go
to a "recommended" shop Instead."
22. Questions
a. If passed, the revisions to CIC Section 758.5
and the new uncodified Legislative Findings and
Declarations will likely have a material impact on the
Insurance Commissioner's current proceeding to adopt
regulations implementing the anti-steering statute.
Committee staff has not been provided with any
information to indicate what in the proposed
AB
1200 (Hayashi), Page 13
regulation may be objectionable. Absent any showing
of a specific problem with the regulatory adoption
process now underway, in the same way that passing
laws to influence the outcome of pending litigation is
disfavored, should this bill be passed in view of its
likely effect on a current regulatory process?
b. Possible Policy Amendment In view of the
importance which California's current anti-steering
law assigns to a claimant receiving a written notice
of their right to select the automotive repair dealer
of their choice, should the bill be amended at page 2,
line 29 to strike "orally or" so as to retain the
requirement for written notice?
c. Possible Policy "Conformity" Amendment If it
is the policy of the Committee that the prior
amendment to require retaining a written notice should
be made, then page 2, line 25 of the bill should be
amended to strike "Subject to paragraph (2), no" and
insert "No". This amendment is needed to retain the
bright line rule that if an insurer makes suggestions
or recommendations as to a body shop to a claimant who
has not expressly requested a referral, such a
suggestion or recommendation, made in any context - in
person, on the phone, or in any other context
including the various kinds of information sharing
provided for in section 2 of the bill at page 2, lines
31 to 37 - still requires a written notice of the
claimant's right to select an automotive repair
dealer.
23. Suggested Amendments See Comment 22, paragraphs (b) and
(c) immediately above.
24. Prior Legislation SB 551 (Speier) of the 2003-2004
Session established the current law regarding body shop
referrals and steering which is the subject of this bill.
POSITIONS
Support
Personal Insurance Federation of California
Association of California Insurance Companies
AB
1200 (Hayashi), Page 14
American Insurance Association
National Association of Mutual Insurance Companies
State Farm Insurance Companies
Allstate
Farmers
Liberty Mutual Group
21st Century
Progressive
Oppose
California Autobody Association
Collision Repair Association of California
California New Car Dealers Association
Fender Menders, Inc.
Consumer Watchdog
Consumer Attorneys of California
Penske Automotive Collision Center
Bertolli's Auto Body Shop, Inc
Faith Quality Auto Body, Inc.
Bakersfield Auto Body
Precision Auto Body
Principal Consultant: Kenneth Cooley (916) 651-4102