BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Jackie Speier, Chair
AB 303 (Calderon) Hearing Date: July 13, 2005
As Amended:July 1, 2005
Fiscal Yes
Urgency: No
VOTES: Sen. B., P. & ED.(6/27/05):5-1/ Pass based
on new language
Asm. Floor (4/28/05):77-0/ bill gutted
and amended
Asm. Appr. (4/20/05):18-0/ bill gutted
and amended
Asm. B. & P. (4/12/05):
10-0/ bill gutted and amended
SUMMARY Would allow a vehicle owner to authorize his/her
insurer to act on his/her behalf to arrange repair of the
owner's motor vehicle, as specified
DIGEST
Existing law
1. Requires the Bureau of Automotive Repair (BAR) to
regulate auto body shops and authorizes BAR to inspect
vehicle repairs;
2. Prohibits an insurer from requiring that a vehicle be
repaired at a specific repair shop or from otherwise using
methods to steer a policyholder either away from or to a
specific shop;
3. Notwithstanding the aforementioned prohibition (Number 2
above), allows an insurer to suggest or recommend that an
automobile be repaired at a specific automotive repair
dealer if a referral is expressly requested by the claimant
or the claimant is informed in writing of his/her right to
select the automotive repair dealer;
4. Prohibits an insurer from lowering the rate of payment
for the reasonable cost of repairing a vehicle to a rate
AB 303 (Calderon), Page 2
charged by a shop chosen by the insurer if the policyholder
selects a different repair shop than one recommended by the
insurer;
5. Allows, but does not require, an insurer to conduct an
auto body repair labor rate survey to determine and set a
specified prevailing auto body rate in a specific
geographic area and requires any insurer that conducts such
a survey to report the results of that survey to the
Department of Insurance (DOI);
6. Prohibits an insurer from requiring an auto body repair
shop to pay for the cost of an insured's rental vehicle or
to pay for the towing charges of the insured with respect
to an accident as a condition of participating in the
insurer's direct repair program;
7. Pursuant to the Automotive Repair Act (Business and
Professions Code Section 9880 et seq.), defines "customer"
as the person presenting a motor vehicle for repair and
authorizing the repairs to that motor vehicle, and
explicitly states that customer does not mean an insurer
involved in a claim that includes the motor vehicle being
repaired.
This bill
1. Would provide that, notwithstanding Business and Professions
Code Section 9880.1(j), nothing precludes a person, upon
filing a claim to initiate repair of a damaged vehicle, from
authorizing an insurer to act on his or her behalf to
arrange the repairs;
2. Would require the following of any insurer so authorized:
a. The insurer would be required to advise the motor
vehicle owner at the time he or she files the claim, of
his or her right to choose his or her repair dealer, as
set forth in Section 758.5 of the Insurance Code;
b. The insurer would be required to provide a rental
vehicle while the corrective repairs are being
completed, if coverage of that type is provided under
the insurance policy;
c. The owner would have to be provided an opportunity
AB 303 (Calderon), Page 3
to inspect and approve the repairs upon their
completion;
d. The insurer would be required to provide a written
warranty that the insurer would, at no cost to the
owner, arrange for the correction of any repair that
fails to meet generally accepted industry standards as
to form, fit, finish, durability, and functionality, as
commonly recognized in the automobile repair industry at
the time the repairs are made, for as long as the owner
owns the repaired vehicle;
3. Would provide that the insured's option to designate his or
her insurer to arrange for motor vehicle repairs need not be
made at the inception of the insurance policy, and would
only need to be made at the time the repairs are needed;
4. Would state that the insured's option to designate the
insurer to arrange repairs does not result in the waiver of
any other rights the insured may have by law.
COMMENTS
1. Purpose of the bill . To remove a provision in existing law
that prevents an insurer from acting on behalf of a motor
vehicle owner to arrange for the repair of the owner's motor
vehicle and, in doing so, to allow Progressive Insurance
Companies to offer its Concierge program in California and
to allow other insurance companies the option of offering
similar types of programs in the state.
2. Background . When a car is damaged in an accident, a
vehicle owner currently has two choices. The consumer may
either go directly to a body shop of his or her choosing,
obtain an estimate, present the estimate to his or her
insurance company, and proceed to have the work done; or,
the consumer may elect to have repairs done at a shop
recommended by his/her insurer.
Agreements between auto body shops and insurers are known as
direct repair programs (DRPs). Under a DRP, the auto body
shop agrees to certain conditions (typically a labor rate
AB 303 (Calderon), Page 4
below that which the shop usually charges and a promise to
guarantee the work performed) in exchange for being placed
on a list of shops to which the insurer will refer customers
in the event that the policyholder's vehicle needs auto body
work.
This bill would authorize a third option by allowing a
vehicle owner to delegate the responsibility for having
his/her car repaired to his/her insurer. Under this third
option, a vehicle owner would take his/her car to a
designated drop-off location, leave his/her car to be fixed,
receive keys to a rental car, and return to pick up his/her
repaired car at a later date. All communications involving
the vehicle's repair would be handled between the insurer
and the body shop. The third option is currently prohibited
in California, pursuant to AB 1079 (Bermudez), Chapter 874,
Statutes of 2004.
Prior Committee Hearings. In October and November 1999, the
Senate Insurance Committee held oversight hearings on auto
body repair issues and on abuses that had been reported
within the auto body repair industry. Auto body fraud
usually involves billing for work that is not done or is
done but is not required. Some fraud is due to incompetence
and a willingness to cheat. During the hearings, some auto
body shops argued that insurers cut costs by demanding that
shops work for low labor rates and agree to other
concessions in trade for having the insurer refer insureds
to do business with favored shops.
Insurers said that DRPs keep insurance rates low, while some
shops claim that DRPs foster an environment of favoritism
and fraud, in which invoices are padded by shops to make up
for lower labor rates paid by insurers to DRP shops. Shops
argued that there would be less fraud and better service if
they competed for customers based on work performance,
rather than on connections with insurers. The committee's
summary report on the hearings, issued in February 2000 and
entitled "Fraud on Wheels," served as the basis for SB 1988
(Speier), Chapter 867, Statutes of 2000.
SB 1988, the Anti-Auto Theft and Insurance Fraud Act of
2000, implemented many of the recommendations contained in
"Fraud on Wheels." Among its provisions, the bill required
BAR to undertake a pilot program to inspect auto bodywork on
insured vehicles, determine whether fraud was being
AB 303 (Calderon), Page 5
committed, and prepare a report for the Legislature in which
it recommended measures to prevent auto body fraud. The
bill also prohibited insurers from requiring auto body shops
to pay for an insured's rental or towing charges and
required DOI to maintain a record of auto body shop reports
of denial by insurers to participate in DRPs.
In September 2003, BAR issued the report required by SB
1988. In its report, BAR stated that, of the vehicles it
inspected, 42% had parts or labor listed on the invoice that
were not actually supplied or performed. The average dollar
amount of overbilling was $811.93. The report stated that
insureds benefited from BAR's efforts to mediate complaints
filed during the pilot program. BAR was successful in
securing offers of more than $500,000 in direct refunds,
rework of the vehicle, or adjustments to the bill by auto
body repair facilities on behalf of consumers.
The Senate Insurance Committee held another auto body repair
hearing in October 2002, during which the issue of insurers
trying to steer policyholders to favored shops arose. The
2002 hearing led to SB 551 (Speier), Chapter 791, Statutes
of 2003. SB 551 prohibited insurers from requiring that an
automobile be repaired at a specific automotive repair
dealer and prohibited insurers from suggesting or
recommending that an automobile be repaired at a specific
automotive repair dealer unless the claimant requested the
referral or the claimant was informed, in writing, of his or
her rights. If the claimant chose an automotive repair
dealer suggested or recommended by the insurer, SB 551
prohibited the insurer from limiting or discounting the
reasonable repair costs.
Despite enactment of SB 551, disputes between insurers and
shops continued throughout 2004. On October 6, 2004, DOI
issued a letter to insurers and the California Autobody
Association seeking to clarify how DOI was interpreting the
mandates of SB 1988 and SB 551. The letter from Tony
Cignarale, Chief, Consumer Services Division, stated that
when an insurer and a policyholder-selected shop disagree on
a repair cost, the insurer, if it chooses to reasonably
adjust the written estimate, must demonstrate that the work
estimate is unreasonable. The letter goes on to state that
an insurer cannot prove unreasonableness if a labor rate
survey has not been conducted. DOI is currently in the
process of updating its regulations regarding to labor rate
AB 303 (Calderon), Page 6
surveys in order to better specify how labor market surveys
may be conducted.
Helping the "Mechanically Challenged." Many of those in
favor of this bill characterize it as a no-hassle way of
getting a car fixed. Many of those in opposition assert
that consumers will be relinquishing important control over
the repairs made to their vehicles by delegating the
responsibility for interacting with repair shops to their
insurance companies. Although none of the letters received
on this bill addressed vehicle owners' knowledge about their
cars or vehicle repairs, the sophistication of vehicle
owners about the repairs being made to their vehicles lies
at the crux of this bill.
People who know very little about cars and repairs may,
arguably, be more likely to choose an option such as the one
offered by AB 303 because they may be intimidated by the
prospect of selecting an auto body repair shop, don't know
what questions to ask, not have the time to shop for a good
repair shop, etc. Those who assert that the option offered
by this bill prevents vehicle owners from interacting with
auto body shops may also be overlooking the value that is
offered to those who will choose the option because these
consumers may not want to interact with auto body shops.
In sum, a key public policy issue posed by this bill is
whether the service that it would authorize protects
consumers who are "mechanically challenged" or whether it
sets up a dynamic in which these consumers may be more
easily subjected to fraudulent practices. While arguments
against this bill concern a diminution of the right of
consumers to choose a repair shop, a deeper concern may
arguably be the removal of the consumer from details of the
repairs, particularly work that involves installation of
safety equipment (bumpers, hoods, etc.). Some insurers may
require that safety parts be factory-made (Original
Equipment of the Manufacturer), while others may not.
Without the interface between the consumer and the repair
shop, a consumer may not know any details related to key
safety equipment and may not even be aware that there are
choices.
3. Support. Progressive Insurance Companies asserts that,
"AB 303 is necessary to provide California insureds with a
AB 303 (Calderon), Page 7
more timely and convenient option for repair of a motor
vehicle damaged as a result of an automobile accident or
collision. This important option has always been available
to California policyholders until the ability to implement
such a program was made illegal in California last
session?Progressive Insurance Companies has pioneered a
consumer oriented program which resolves the many hassles
related to having an automobile repaired after an accident
or collision. As a result of this program, consumers no
longer are required to have three estimates for repairs,
arrange for a rental vehicle?Instead, under Progressive's
Concierge program the insured, at his or her sole option,
drops the car off at Progressive claims center, reviews the
damage with a claims representative, and is handed the keys
to a rental vehicle. When repairs are complete, the insured
returns the rental vehicle to the same location, inspects
and approves the repair work, and receives a guaranty for
all repair work for as long as they own the vehicle."
According to the Personal Insurance Federation of California
(PIFC), "AB 303 would simply allow insurers whose customers
choose not to deal with the hassles of auto repair a
convenient service to repair their vehicles." PIFC also
refers to BAR's September 2003 report to the Legislature, in
which BAR recommended, "?exploring specific methods and
strategies to reduce unfair and illegal practices in the
auto collision repair industry."
PIFC asserts that AB 303 would allow insurers to help combat
and shield their customers from these practices. PIFC also
questions why the process of identifying a high quality
repairer has to rest solely on the shoulders of the
customer. "In the era of increased, high quality service,
why should the insurance industry be prohibited from
offering its customers the most convenient options
available? The sale of auto insurance is an extremely
competitive industry. At the end of the day, as long as the
auto insurance industry has enough players to remain a
competitive market, then insurers will have a vested
interesting delivering a higher quality experience from a
repair shop in which there is an affiliation."
4. Opposition . Those in opposition (see numerous opponents in
AB 303 (Calderon), Page 8
"opposition," below) to this bill assert that it takes away
consumer rights and limits the consumer's decision-making
process. Many of the comments may be summarized as follows:
"All repair decisions on the vehicle will be based upon the
best interest of the insurance company, not the insured.
This is a clear conflict of interest."
The California Motor Car Dealers Association and the Alliance of
Automobile Manufacturers believe that AB 303 will give
insurance companies the authority to usurp consumers' rights
and decision-making authority, thereby granting insurers the
authority to make all critical repair decisions. "The
insurer that pays the auto repair bill will be the same
entity that approves any repair. The financial incentive
for insurers to cut corners, install cheap or inferior parts
and to rush repairs may prove irresistible." Both trade
organizations believe the bill creates the potential for
major conflicts of interest.
The Consumer Attorneys of California believes that maintaining
current law is crucial to ensuring that an insured's
interests are adequately protected from possible collusive
and unethical insurance practices.
Insurance Commissioner John Garamendi is opposed because the
insurer would be permitted to have complete control over
what shop to repair the vehicle in, what type of parts are
acceptable (original equipment manufacturer, aftermarket,
used), and would also decide whether the price charged by
the shop is appropriate. "This could result in less choice
for consumers and may lead to more problems with repairs and
repair complaints, as insurers would have a financial
incentive to have the vehicle repaired for less money than
might reasonably be required to repair the vehicle to its
pre-loss condition."
Consumers for Auto Reliability and Safety echo the
Commissioner's concerns. AB 303, "?would allow insurers,
who have an inherent conflict of interest, to take too much
control over the auto repair process away from consumers.
While we understand the desire to consumers to have more
convenience in auto repair, this is a fundamentally flawed
approach."
Attorney General (AG) Lockyer is opposed to the bill, unless it
is amended. The AG believes that the proposed warranty
AB 303 (Calderon), Page 9
provision has practical problems that may make the warranty
more illusory than an actual remedy for consumers. "The
problem inherent in this type of warranty is showing that
the initial work was substandard and that the warranty
should be honored." The AG also believes that the warranty
should include diminution in value. "This issue will arise
when an inspection performed in the future by a prospective
buyer of the used vehicle reveals that shoddy repairs were
performed and undesirable replacement parts were used."
Two of the AG's other concerns - that the word "safety"
should be included in subdivision (4) along with the terms
"form, fit, finish, durability and functionality" and that
the insurer provide the vehicle owner a copy of the final
repair order, a summary of all the work that was done on the
vehicle, a listing of parts used to repair the vehicle, and
the name, address, and phone number of the shop that worked
on the vehicle - are included below in the "Suggested
Amendments" section. Additional language is also proposed
by staff within that proposed amendment.
5. Questions .
a. Should the State of California prevent its residents
from voluntarily contracting for the type of service
described by this bill?
b. Can consumers protect their interests-- do they even
need the help of the State of California--- in these
types of transactions?
c. Would most consumers recognize if they had been
cheated? For example, should the bill be amended as
follows:
i. Add safety to the list of items the
insurer must warranty?
ii. Clarify whether used or refurbished parts
may be ordered by the insurer on behalf of the
consumer, without the consumer being aware of it?
iii. Clarify when an insurer may order
after-market parts or when the insurer is
required to use original manufacturer specified
parts?
AB 303 (Calderon), Page 10
iv. Require that insurers inform vehicle
owners of the name, address, and phone number of
the shop that worked on their vehicle and give
owners a copy of the final repair order,
including a list of everything that was found
wrong with the vehicle, a summary of all of the
work that was done on the vehicle, and a list of
the parts that were used to repair their vehicle?
6. Suggested Amendments .
a. The language of this bill strictly mentions insurers
and never mentions auto repair dealers. The bill is
written within the Business and Professions Code because
the bill that this legislation seeks to amend was written
within that code. The Senate Business and Professions
Committee advised this committee's staff that remedies
under the proposed statute would rest with the Bureau of
Automotive Repair (BAR) and would likely be
administrative in nature. However, the BAR does not
regulate insurance companies .
It appeared to staff of the Senate Judiciary Committee
that the remedy for violations of this proposed statute
could also be through a Business and Professions Code
Section 17200 suit, assuming that stricter standing and
harm requirements of Prop. 64 can be met. That cause of
action would rely upon some showing of harm to an
individual that the individual would seek an attorney to
deal with the insurer, and perhaps a class action.
Staff of the Banking, Finance and Insurance Committee
recommend that the language of this bill be made clearly
enforceable through the traditional regulatory mechanism
of a DOI market conduct examination . This can be
accomplished by first making an amendment to the Business
and Professions Code, and then to the Insurance Code, as
follows:
Amend Business and Professions Code Section 9880.1 (j) as
follows:
(j) "Customer" means the person presenting a motor
vehicle for
repair and authorizing the repairs to that motor
AB 303 (Calderon), Page 11
vehicle. "Customer"
shall not mean the automotive repair dealer providing
the repair
services or an insurer involved in a claim that
includes the motor
vehicle being repaired or an employee or agent or a
person acting on
behalf of the dealer or insurer. Notwithstanding this
definition of "customer," an insurer may act in the
manner prescribed in Insurance Code Section 758.5 (f).
Amend Section 758.5 (the law governing insurers and
direct repair programs) as follows:
758.5 - Same language as in current law for
subdivisions a - e, and then append the language of
this bill as subdivision (f). Existing subdivision
(f) should be renumbered as (g).
Existing subdivision (f) (newly renumbered as (g)
through the proposed amendment) makes violations of the
law on direct repair programs by insurers a regulatory
matter under the Unfair Claims Practices Act.
Thus, after amended as suggested by staff, AB 303
would become enforceable by the DOI through its normal
market conduct examinations process.
b. On page 2 at line 16, amend (3) as follows:
(3) The owner shall be given the name, address, and phone
number of the shop that works on his/her vehicle before
work commences on the vehicle, a copy of the initial
estimate, and the option to decline the use of used or
non-original equipment manufacturer parts if the insurer
intends them for use, the final repair order, including a
list of everything that was found wrong with the vehicle
whether or not repaired, a summary of all of the work
that was done on the vehicle, a list of the parts that
were used to repair the vehicle, and an opportunity for
inspection and approval of the repairs upon completion.
This amendment is proposed in order for the consumer to
have as much knowledge as possible about the repair so
that defective, shoddy, used or non-original manufacture
parts can be avoided by the consumer. Under this bill,
AB 303 (Calderon), Page 12
the normal interface between an auto repair dealer and
the consumer is being replaced by the interface between
the insurer and the shop. The interface is when
questions arise about the types of parts and about
whether safety is being compromised by the choice of
parts. Given the history of repairs that were
subsequently found by BAR to involve fraud (see
"Background," above), ignorance of the details of a
repair is not necessarily bliss.
c. The bill in its current form has the following
language on page 3 starting on line 6:
The insured's option to designate the insurer to
arrange repairs to an insured motor vehicle does not
waive any other rights the insured may have by law.
The intent appears to be to ensure that "Concierge
service" or its look-alikes does not come at the expense
of a right otherwise provided in law. According to Senate
Judiciary Committee staff, statutory and common law
rights can be signed away by the consumer, unless public
policy prohibits the waiver. This bill would not prohibit
such waivers. Banking, Finance and Insurance Committee
staff note that consumers may not understand what rights
they sign away, including the right to sue the insurer
for bad work by the body shop. This committee's staff
therefore recommends that the bill be amended by
substituting for the language that currently appears in
the bill, the following:
"It shall be a violation pursuant to subdivision (staff
note: f of Section 758.5 of existing law) for an insurer
to request or require that an insured change, alter or
waive any legal rights the insured may have under
applicable law, or that an insured sign an
indemnification agreement that affects the legal rights
of the insured."
This amendment would clarify that the insurer could not
require that a consumer, for example, sue only the auto
repair dealer and not the insurer. Such a requirement
would become a violation of the Unfair Claims Practices
Act (referenced as subdivision (g)), and the DOI could
therefore prohibit such an act by an insurer through the
market conduct examination process.
AB 303 (Calderon), Page 13
d. On page 2 at line 21, after the word "to" insert
"safety,". Staff recommends that, as a matter of public
policy, turning over your vehicle to someone else to
supervise the repairs should mean that the other person
is obligated to provide a warranty that the car is safe
when returned to you, not merely that it looks nice.
Prior legislation
a. SB 1988 (Speier), Chapter 867, Statutes of 2000. SB
1988, the Anti-Auto Theft and Insurance Fraud Act of
2000, required BAR to undertake a pilot program to
inspect auto bodywork on insured vehicles, determine
whether fraud was being committed, and prepare a report
for the Legislature in which it recommended measures to
prevent auto body fraud. The bill also prohibited
insurers from requiring auto body shops to pay for an
insured's rental or towing charges and required DOI to
maintain a record of auto body shop reports of denial by
insurers to participate in direct referral programs.
b. SB 551 (Speier), Chapter 791, Statutes of 2003. SB
551 prohibited insurers from requiring that an automobile
be repaired at a specific automotive repair dealer and
prohibited insurers from suggesting or recommending that
an automobile be repaired at a specific automotive repair
dealer unless the claimant requested the referral or the
claimant was informed, in writing, of his or her rights.
If the claimant chose an automotive repair dealer
suggested or recommended by the insurer, SB 551
prohibited the insurer from limiting or discounting the
reasonable repair costs.
c. AB 1079 (Bermudez), Chapter 874, Statutes of 2004.
Amended the definition of a "customer" in Business and
Professions Code Section 9880.1 to specifically exclude
an insurer acting on behalf of a motor vehicle owner. AB
1079 had the effect of prohibiting insurers from offering
programs such as the Concierge program offered by
Progressive Insurance Companies.
d. SB 98 (Murray). Would allow a policyholder to
receive a reduced auto insurance premium if the
policyholder agrees to have his or her insured vehicle
repaired at one of at least three auto body shops that
AB 303 (Calderon), Page 14
are within 25 miles of the insured's home or the accident
scene and that are recommended by the insurer.
POSITIONS
Support
Progressive Insurance Companies
Personal Insurance Federation of California
Association of California Insurance Companies
Nine letters from individual independent insurance brokers
Oppose
Alliance of Automobile Manufacturers
Consumer Attorneys of California
Insurance Commissioner John Garamendi
Consumers for Auto Reliability and Safety
Department of Justice
California Motor Car Dealers Association
Advanced Auto Body Center
Amato's Auto Body
Bellwood Auto Body Services, Inc.
Bertolli's Auto Body Shop, Inc.
Bostrom's Auto Body
California Autobody Association
Carmat Collision Center
Chico Collision Center, Inc.
Critical Car Care and Auto Body, Inc.
Elite Autobody & Collision Center
Excel Auto Body & Paint
Fallbrook Auto Body & Paint
FCC Collision Centers
Francis Collision Centre
Greenwald's Autobody & Frameworks
Guanella Auto Body
Henry's Collision Auto Body & Paint Inc.
Hiller Auto Body & Frame
Hugh Piper's Body Shop
J & M Auto Body
Jim Burke Ford Collision Care Center
Jones Collision Center
Kraft's Body Shop, Inc.
Little Red's Auto Collision & Glass
Marco's Auto Body of Monterey Park
Montclair Auto Body, Inc.
AB 303 (Calderon), Page 15
Moreno Valley Auto Mall Collision Center
Norwalk Toyota
Palm Springs Classic Auto Body
Pan American Body Shop, Inc.
Pettinato's Inc.
Phil's Auto Body
Premier Auto Body
Royalty Auto Body, Inc.
San Francisco Auto Body & Frame Repair
Santa Clara Auto Body
Simpkins Auto Body, Inc.
Skill Craft Body Shop, Inc.
Spectrum Body & Paint
Sturken Auto Body Repairs, Inc.
Sunroad Collision Center
Sutter City Auto Body
Yucca Auto Body
Fifty three letters from individuals
Consultant: Eileen Roush & Brian Perkins (916) 651-4102