Illinois AG Examining Insurer/Repairer Relationships

The Office of the Attorney General of Illinois is currently examining the legitimacy of the existence of any agreement between an insurer and a repairer. The Alliance of Automotive Service Providers of Illinois (AASP-IL) initially brought this issue to the attention of the Attorney General.

There is wariness in the industry when it comes to repairers dealing with insurers, particularly when insurers interfere with the repair process. And, considerations of these issues are not DRP-specific. What's being examined in Illinois are the relationships that affect the consumer, violate consumer protection statutes and put shops in the position of being forced to violate consumer protection statutes.

"The fact is, the underestimation of repair costs as a pattern or practice is a fraud against the vehicle owner - whether insured or claimant - no matter who is writing the estimate," says Wade Ebert of American Auto Body in Springfield, Ill.

Ebert, who has been closely following the examination, is one of many industry figures who feel that secret agreements are bad - for the industry and the consumer.

In the collision repair industry, repairers violate consumer protection laws when they engage in negotiations, agreements or contracts outside of the contract of repair established with the vehicle owner. The problem, some say, is that repairers don't have a choice in the matter.

"Sadly, many repairers feel they are in the position of being forced to engage in these negotiations on behalf of the consumer," says Ebert. "No repairer in the state of Illinois of which I am aware is licensed to negotiate on behalf of a vehicle owner. Such licenses are required in most states, not just ours. In Illinois we call these licensed individuals 'attorneys.'"

A provision in the Illinois Administrative Code allows for the licensing of Public Insurance Adjusters who may, by a specific contract mandated and regulated by the State, represent an insured in negotiations with their insurer. However, no provision allows them to represent a third-party claimant, such as someone damaged by an insured.

In 2006, Illinois Attorney General Lisa Madigan successfully prosecuted a repairer in the Chicago area for violations of the Public Insurance Adjusters (PIA) and Registered Firms Act. The repairer in that case, who was a home repairer, was found to have negotiated directly with an insurer on behalf of an insured without a license to do so. The wording of the Act specifically defines the act of negotiating for a fee to include many different types of payment, including any agreement to make repairs for the amount of the insurance proceeds payable.

"What's important here is to not lose sight of the issue because the repairer was in construction or even that the provision for a Public Insurance Adjuster exists," says Ebert. "The provision was created in an effort to define roles that may be contracted by Illinois consumers. Without the provision, negotiating on behalf of a consumer is the sole domain of attorneys. The violation in that case would be one of the Unauthorized Practice of Law (UPL), something that does indeed exist in every state."

Thus, according to Ebert, the prohibition against negotiating on behalf of the consumer is being ignored, much to the detriment of the consumer - whether they're an insured or a claimant against an insured.

Negotiations like this are often under contract or agreement and, as such, are often being conducted before the damage to a vehicle owner's property has occurred. During the repairs, the negotiations affect the manner in which damage estimates are created in both content and completeness, and how repairs are performed.

In some situations, the repairer never creates estimates for repair. Often the vehicle owner never receives a final bill from the repairer. Repairers often feel they can't create a final invoice for the consumer because they don't know what the insurance company will pay. Then, the vehicle owner is left with the insurance estimates as the only documentation of the repairs performed, which is a great concern to State Departments of Revenue. If the job never hits the books, taxes are never collected, which is why documentation of transactions is required by regulatory agencies.

"Transparency being the standard, deals cut by the repairer before, during, or after the fact, which are outside of the contract of repair established with the vehicle owner, especially those which have details specifically concealed from a vehicle owner, are by the UPL and PIA standard, illegal," says Ebert.

Going to court

On Dec. 19, 2006, Madigan filed a lawsuit against the fifth largest insurance brokerage company in the United States, alleging that the company authored and participated in several business-steering schemes that raised insurance prices for Illinois consumers.

The civil complaint, filed in Cook County Circuit Court, alleges that Acordia Inc., a subsidiary of Wells Fargo Bank, violated the Illinois Consumer Fraud and Deceptive Business Practices Act by demanding and receiving undisclosed contingent commissions from insurance companies to induce Acordia to steer business to those insurance companies, regardless of the price or quality of their policies.

Contingent commission amounts are usually based on the volume and profitability of the business a broker or agent produces for an insurance company. Madigan's investigation found this encourages brokers to improperly steer their clients to particular insurers in violation of the fiduciary duty they owe their clients.

"It is of great concern that one of the country's largest insurance brokerage companies, which holds itself out as an unbiased customer representative, would demand payments to steer its clients to specific insurance companies in the ways we have alleged in this lawsuit," Madigan said in a statement.

In the lawsuit, the state seeks restitution for injured policyholders, civil penalties under the Consumer Fraud Act and an injunction that would bar Acordia from engaging in the alleged conduct in the future.

The complaint alleges that, since 1999, Acordia's Millennium Partnership Program has consolidated all of its insurance business to a small number of insurance companies that paid Acordia substantial fees to place high volumes of Acordia's clients with Millennium Partners. These fees included prepayments for steering future customers to Millennium Partners. Acordia was obligated to place business with that Millennium Partner or pay back the advance. None of these agreements were disclosed to Acordia's clients.

It was also alleged that insurance companies that refused to become Millennium Partners were threatened that Acordia would either not send business to them, or enter them into second tier contingent agreements for lesser payments. Not only that, the complaint alleges that Acordia worked to transfer large blocks of customers to the Millennium Partners, including enlisting Wells Fargo Bank to refer its banking customers to Acordia, so that Acordia could funnel those clients to the Millennium Partners.

The New York and Connecticut Attorney General's offices also filed complaints against Acordia Inc. based on their investigations of customer steering. Madigan's office has been working cooperatively with the Attorneys General of New York and Connecticut.

The Acordia lawsuit is part of the Illinois Attorney General's wider investigation of the insurance industry, which began in late 2004. To date, Illinois has settled with several insurers and brokers, resulting in the recovery of tens of millions of dollars in restitution and penalties.

Public Interest Division Chief Benjamin Weinberg, Public Interest Division Deputy Chief Brent Stratton and Assistant Attorney General Mark Kaminski of the Special Litigation Bureau are handling the case for Madigan's office.

Bottom line

The lawsuit against Acordia is a parallel that helps illustrate the impropriety of agreements that influence the decisions made by a contractor that bear upon the consumer, some feel. The existence of these agreements place the consumer at risk that two business entities who work with each other regularly will work together for their benefit, not detriment. Each has an individual contractual duty to the consumer that should not be compromised by the other.

"While I do not hold myself out as any legal authority, it is the duty of every business owner within any industry to be intimately familiar with the legal issues which affect their operation," says Ebert.