Jeff Swiatek

jeff.swiatek@indystar.com

Pat Johnson, a cigarette-puffing Martinsville body shop owner, cut ties with insurer State Farm last November, fed up with its requirement that he buy vehicle parts through its online PartsTrader site instead of using his own longtime suppliers.

Now Johnson is feeling the pain of losing business from State Farm, the largest auto insurer in Indiana with 25 percent of the market. Revenue at Brothers Body & Paint has fallen by $100,000 so far this year, a big bite out of the shop's $2 million in yearly billings.

To cope, the longtime collision shop owner might have to trim his 12-person staff or cut out other expenses, but he's adamant about not letting State Farm dictate his parts-buying.

"They're a force to be reckoned with. You don't want to argue with them. But sometimes you have to stand your ground," he said, looking out a shop window at his parking lot along busy Ind. 39.

Johnson's stand-off with State Farm sums up the state of relations these days between many body shops and insurers: badly out of alignment.

Body shops in at least six states, including Indiana, have banded together to sue the nation's top auto insurers, including State Farm, Geico and Progressive. They accuse insurers of antitrust violations, collusion by making deals with preferred auto-body shops to tamp down prices, and interfering with body shops' business by dictating how they do repairs. There are also allegations that shops are being forced to use substandard repair parts.

Body shops are seeking damages from the suits that could amount to billions of dollars.

Mississippi trial lawyer John Eaves Jr., known for launching high-profile lawsuits, such as one against the operator of the grounded Italian cruise ship Costa Concordia, is the driving force behind the body-shop lawsuits. He hopes to work with local counsel to file similar claims in as many as 40 states within a year.

The coming court clashes have implications for consumers. Body shops contend insurance company dictates to body shops can create increased hazards for drivers and passengers by putting substandard parts in vehicles.

For instance, the used and non-brand parts that many insurers' policies pay for in order to save money — even for critical parts — are sometimes not as effective, safety-tested or right-sized as original, factory-built parts.

Non-brand radiator supports in a repaired car, for example, might not resist the force of a crash as well as original parts. Some after-market windshields are half the thickness of originals. And replacement panels in a dashboard might not fit as well, which could slow the speed at which an air bag inflates.

Insurance company dictates are "placing the driving public at harm," says the lawsuit filed in federal court in Indianapolis April 2 by the Indiana Autobody Association and more than 20 body shops against 12 insurance companies. (Other defendants include Allstate, American Family, Auto-Owners, Erie Insurance, Indiana Farmers Mutual, Liberty Mutual, Nationwide, Shelter General and Zurich American.)

Insurers defend policies

Insurance companies have defended their programs for body shops as a key way to keep repair costs under control, so premiums don't ratchet up on auto policies.

"These lawsuits are another attempt to undermine programs insurers have put together" to hold down vehicle repair costs, said Bob Passmore, a spokesman for the Property Casualty Insurers Association of America, which represents insurance companies.

"The programs have been around 20-plus years, and they are time-tested. People like them. They achieve desired results" to get vehicles repaired quickly by repair shops vetted by the insurer and at reasonable cost, he said.

Over the years, insurers have persuaded body shops to agree to cost-cutting efforts by putting the shops on their lists of favored or vetted repairers. It's critical for many independent body shops to get on insurers' most-favored lists because most drivers have crashes so infrequently — once every 10 years, industry estimates say — that few know enough about body shops to want to choose one on their own.

Once signing onto an insurer's favored programs, a body shop must go along with the cost-shaving dictates or risk being delisted. However, the body shops' lawsuits charge that insurers illegally "steer" customers away from using non-favored body shops by saying they aren't certified, their work can't be guaranteed, or other persuasive reasons.

"They trusted me for 20 years, and now I'm nothing," Johnson said of State Farm.

He said the big insurer took Brothers Body & Paint off its Select Service list of favored body shops when he wouldn't agree to use its PartsTrader program.

Johnson, who's repaired cars in Martinsville since 1982, said he was fed up with State Farm and other insurers anyway for continually expanding their lists of body shop work they won't fully pay for. That included no longer paying full cost for installing corrosion protection inside a bumper and doing fine sanding on body panel paint jobs, he said.

"They don't tell you not to (perform certain routine repair tasks)," Johnson said. "They just don't pay for it. If they went to Wal-Mart, they'd pick up 10 things and they'd pay for six. That's the way they operate," said Johnson, who has joined the Indiana lawsuit against the insurance companies.

On average, insurers won't reimburse for $550 to $750 worth of work on a typical repair job of $3,500, leaving it up to the body shop to pick up the unpaid costs, said Tony Passwater, executive director of Indiana Autobody Association. That $550 to $750 estimate of unreimbursed costs will likely be used by the body shops' attorneys in figuring their damage claims against the insurers.

Passwater has been talking up the lawsuit among auto body shops around the state and expects that the 24 current plaintiffs will swell by 15 to 20 in the next several months.

But some shop owners, he said, are reluctant to join because "they're concerned about any retribution the insurance companies might do."

Controversial wage survey

State Farm, the Bloomington, Ill.-based insurance giant, is the main target of the lawsuits, said Eaves, the Mississippi trial lawyer, because of its market dominance and creation of an influential survey of body shop wage rates used to justify how much it pays to cover labor costs on a repair.

The Indiana lawsuit alleges State Farm "manipulates the results" of the wage survey to show rates as lower than they really are, while refusing to detail how the survey is done.

"The shops are simply required to blindly accept State Farm's pronouncements" on what prevailing body shop wages are around the state, the Indiana lawsuit says.

State Farm and several other companies named in the lawsuits denied the main allegations in the lawsuits, though none would comment in detail on the litigation.

"This suit has no merit and in no way accurately describes the business relationship State Farm has with thousands of body shops across the country," said Missy Dundov, a spokeswoman for State Farm.

Dundov said State Farm built its Select Service network by listing body shops that provide warranties on their work and meet performance standards set by State Farm. But a State Farm customer is "free to choose the repair shop of his or her choice," even if it's not on the Select Service list, she said.

When it comes to parts, Dundov said, State Farm's "current business practice" is to pay for non-factory-made parts only in uses that don't play a role in crash protection — unless a customer requests otherwise. If a body shop is told to install a used part, "we rely on the repairer to inspect the part and ensure that it is of sufficient quality to repair the vehicle properly," she said.

PartsTrader, which State Farm began using in 2007, "creates a consistent approach to parts ordering," she said, and does so "at a competitive price, as quickly as possible." Body shops overall have had a "quite positive" reaction to the online ordering system, Dundov said.

She said State Farm pays labor rates based on surveys it does of the body shops themselves, including those that aren't in its Select Service program.

As for allegations in the lawsuit that State Farm steers customers to body shops in its Select Service network, Dundov said it's up to customers to decide what body shop to use.

A spokesman for Progressive, Jeff Sibel, said, "We are aware of the new litigation against us and believe that we can demonstrate the fairness in our claims practices at the appropriate time."

A Geico spokeswoman, Christine Tasher, said the company won't comment on pending litigation.

The only Indiana-based plaintiff in the Indiana lawsuit is Indiana Farmers Mutual Insurance, whose legal counsel, Sam Ellingwood, said he thinks the company shouldn't have been listed as a defendant and was confused with its much-larger in-state competitor Indiana Farm Bureau, which is not named as a defendant. Ellingwood said Indiana Farmers will ask to be dropped from the suit.

Hard fight expected

Eaves said he thinks the numerous lawsuits he and co-counsel are filing could eventually be consolidated in one court. He said he expects to present testimony from "whistle-blowers" who worked for insurance companies and will give evidence of collusion among companies in their business tactics.

But the litigation could be fierce, Eaves said."We're anticipating extensive pushback. They're making billions of dollars by these practices and they're not willing to give it up easily."

Even so, Eaves said, several insurance companies have approached him to ask about settling the claims to avoid lengthy litigation and a possible high-stakes jury trial. "We are already in discussion with three insurance companies that are willing to discuss resolving it. I was kind of shocked. I never had a case where somebody came so quickly and wanted out."

Body shops and insurers tangled in court decades ago over many of the same issues, and it resulted in a 1963 federal consent decree between the nation's top auto insurers, their trade associations and the federal government. Insurers agreed in the decree to avoid a host of anti-competitive measures, including conspiring to hold down prices paid for repair claims.

Eaves said he thinks courts can order that 51-year-old decree to be enforced again today.

Johnson, whose shop repairs about 60 vehicles a month, said he'd be happy if insurance companies dropped their approved-shop lists and repair mandates and paid for claims without dictating through reimbursements how body shops like his should do their job.

"I don't tell them how to sell insurance," he said. "All I want to do is fix cars."

Call Star reporter Jeff Swiatek at (317) 444-6483. Follow him on Twitter: @JeffSwiatek.