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The $34 million Error

http://www.glassbytes.com/documents/ConnSupremeCourtDecision.pdf

In his opinion to reverse the $34 million judgement against the Hartford Insurance Company, Judge Palmer considered the following quote from a letter from the CT Insurance Commissioner Sullivan to CT Attorney General Blumenthal.

‘‘I would also like to point out at this time that the [d]epartment does not believe there is anything improper about DRP contracts. We believe that they are legally permitted based on the informal opinion we received from your office related to auto glass repair networks and case law throughout the nation.... In fact, courts have sanctioned [DRP] shop contractual agreements as being [procompetitive] and not [in violation] of antitrust laws. Such [DRP] agreements have the [procompetitive] effect of keeping auto repair costs as low as possible for consumers because insurers can charge...lower insurance rates and premiums than they might otherwise be allowed to charge if they were required to pay he shop’s posted labor rate. I do not believe that it is prudent policy to sacrifice the interests of the general public in Connecticut, which benefits from one of the healthiest auto insurance markets nationwide, for the interests of a handful of auto body shops [that] are finding it difficult to compete with DRPs, particularly when some have made their own business decision to not become a DRP.’’ Letter from Thomas R. Sullivan, Insurance Commissioner, to Richard Blumenthal, Attorney General (February 25, 2008) pp. 1–2

Note the above reference to auto glass repair networks and case law......I'm not sure to what case law they were referring, unless maybe Diamond Triumph vs Safelite but it seems to me that the attorneys and the judges have been getting it all wrong and making it worse and worse as time goes by. Some one needs to expose the fallacy in their thinking.

First of all, network agreements and DRP's are contracts outside the business of insurance because they are agreements between insurers or their agents (TPA's) and service provider repair companies and have nothing to do with the actual business of insurance being the relationship between an insurer and an insured and the odds that an incident insured against will occur or not. As such, the network agreements and DRP agreements are not protected by the McCarran Ferguson Act.

Second, the network agreements and DRP's must be treated as suspect on the surface because established public policy bans auto insurers from any activity which has the effect of steering policyholders to or away from service providers. This being the case, any business model which is based on getting referrals from auto insurers is necessarily corrupt because it involves illegal steering of policyholders to or from service providers. Why would a service provider enter into an agreement with an auto insurer unless it expected referrals or wanted to avoid threats of having its business illegally boycotted (steered away from)? I have read a DRP contract that actually requires the service provider to have the policyholder sign a form that is not in the best interest of the policyholder, because instead of only having to pay their deductible, it makes the policyholder agree to pay any difference, between what the DRP shop would charge and what their preferred service provider would charge, out of pocket!

Next, the insurer knows, according to the laws of the land, that it, during the rating process, must assume that a certain percentage of policyholders will freely choose non-network or non-DRP service providers. Accordingly, said insurer must assume that a certain percentage of claims will be paid at higher non-DRP rates and build that extra cost into the premiums paid by the consumer. So, it is fallacious to conclude that network and DRP contracts are procompetitve since they are corrupt on the surface and that premiums will not increase when non DRP service providers are used since the premium already has that possibility figured in!

Finally, the insurance regulators and judges must be made to understand that service providers have every right to set their own rates and that insurers must pay any "reasonable" invoice received from a service provider according to the "four corners" of the contract that they have written and sold to the consumer (policyholder). The insurer's right to make a profit takes no preference over the service providers right to make a profit. The insurer has no right to expect a discount on services provided to its policyholder any more than the policyholder has a right to expect a discounted premium from the insurer.

Here's hoping that the body shop lawyers appeal their case to the US Supreme Court.

Re: The $34 million Error

I read 3 lines before i got bored. And slammed shut my laptop.

Re: The $34 million Error

Long, but good read. Once again the lawyers are shown to be the southern end of a north-bound Asinus (en.wikipedia.org/wiki/Asinus).

Re: The $34 million Error

really???
I read 3 lines before i got bored. And slammed shut my laptop.


That is your problem.......

Re: The $34 million Error

Davey is right. How can the Supreme Court get it so wrong?

The judgement was that “insurance companies in this state (CT) have the right to negotiate the hourly labor rate that they are willing to pay for auto body repairs and to refuse to give their business to an auto body repair shop with which they are unable to agree on such a rate.” The Court further noted that the body shop owners were “capable of representing their own interests” and were “under no obligation to accept insurance related work that is not sufficiently remunerative.”

First of all, the insurer does not have the right to negotiate anything because it does not have the right to choose the repair shop according to state law. That right belongs to the policyholder. Refusing to pay a reasonable invoice where the labor rate was clearly posted has nothing to do negotiations. Repair shop owners can negotiate price with the person that contracts for the repair but has no legal or moral obligation to do so.

Next, if a repair shop owner is approached by a policyholder needing his services and the policyholder's insurer has sold said policyholder a policy in good faith, guaranteeing that if the policyholder's insured vehicle suffers damage that it will pay a reasonable invoice to have the insured's vehicle returned to its pre accident condition minus any applicable deductible, why does the insurance company have the right to pay the repair shop less than the reasonable invoice submitted? After all, the insurance company did not contract for the repair. It did not even have the right to contract for the repair, yet went ahead and issurd the policy all the while knowing the policyholder might choose a repair shop that did not have a previously negotiated DRP contract in place.

To suggest that repair shop owners are under no obligation to accept insurance related work that is not sufficiently remunerative is a ridiculous statement!

The judge should have noted that repair shop owners have every right to believe that insurers will pay reasonable invoices for services rendered in full and that the insurers desire to have higher profits does not out weigh the repair shop owners right to make a reasonable profit.

The key word in all of this is "reasonable".

Re: The $34 million Error

Amen, Brother!

Re: The $34 million Error

If you like your repair shop, you can keep your repair shop. LOL

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