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If you are or have been a party claiming diminished value against a Progressive insured in Connecticut, you might have been put off by a misleading statement by a Progressive claims representative. One such claimant’s attorney was told blatantly that the Connecticut Insurance Department refuses to allow insurers to offer diminished value coverage, and, therefore, no diminished value claims can be paid. CT Diminished Value Correspondence

Say, what?

Here is “Claims Specialist” Heather Hinckley’s July 9, 2007 response to a third party claimant’s demand for the inherent diminished value suffered as a result of a Progressive insured’s negligence:

At this time, the State of Connecticut, Department of Insurance does not allow Progressive Insurance or any other company to sell Diminished Value coverage for a vehicle. As the State doesn’t allow sales of the Diminished Value coverage, we are not able to afford Diminished value coverage. For these reasons, but not limited thereto, Progressive Insurance must respectfully deny your claim for damages. I am sorry that I could not advise you more favorably regarding this matter, but trust that you will understand our position.

Counsel for the claimant took the issue up with the Connecticut Insurance Department, which responded on September 26, 2007 stating that:

Heather Hinckley of Progressive Insurance has responded that the Connecticut Insurance Department does not allow diminished value coverage to be sold and therefore claims for diminished value cannot be made in Connecticut. In response to Ms. Hinckley’s assertion this is not correct. The Connecticut Insurance Department does not prevent claims made for diminished value and an insurer can request to include provisions of diminished value in their policy.

The CID also included a letter from a Progressive Claims Manager responding to the complaint that said:

I am writing in reply to your inquiry dated Aug. 21, 2007. I reviewed the complaint as well as the claim file and am able to provide you with the following information.

The letter sent by Heather Hinckley dated July 9, 2007, is incorrect.

Well that’s nice. Glad we got that all cleared up.

Of course, several questions remain. Has the Connecticut Insurance Department taken any action to ensure this misstatement of Connecticut law/regulation does not occur again? Has Progressive taken any action to make certain that its employees do not make this misstatement of Connecticut law/regulation again? But the one that has me really wondering is whether Heather Hinckley is still a “claims specialist” or whether she’s been knocked down to “claims representative”, “file clerk”, or “doughnut person”? After all, inquiring minds want to know.

It also bothers me that someone labeled a “claims specialist” by an insurance company can’t tell the difference between what is owed to an insured (first party) and what is owed to someone making a claim against an insured (third party). Ms. Hinckley’s comment about Progressive not offering “diminished value coverage” has nothing to do with a third party claim. The only portion of the policy any third party cares about is the section that tells the insured, “We’ll pay for anything for which you become liable up to the policy limits” (excepting, of course, intentional torts). How much of a specialist is a claims specialist who can’t tell the difference between a first party and third party claim? That’s covered in Insurance 101.

Probably, the most pertinent question is how many other people accepted the Hinckley line about diminished value not being permitted to be paid and simply went away? Well, Connecticut, your Insurance Department has spoken. Demand your diminished value. It’s really not illegal after all.

Auto Body Association Protest
	03-28-07 | Members of the Auto Body Association of Connecticut protested at the State Capitol in Hartford in support of legislation to tighten the law against auto insurers steering drivers to specific repair shops. Videographer Alan Chaniewski          Video, as requested.  This video only plays with Windows Media Player.  Click below to download.
You’ll need a version of Windows Media Player 7 or higher to view the video. If you need to download it, go to http://www.microsoft.com/windows/mediaplayer/en/default.asptarget=_blank The video player is supported by Microsoft IE 5.0 and above.

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 Don’t look now, but there is a convoy of tow trucks in Connecticut’s capitol.

Frustrated with the fact that they have to pay annual licensing fees, comply with regulations of the Department of Motor Vehicles, maintain expensive insurance policies, and pay high rates of workers’ compensation to operate their businesses, while employees of Progressive’s Concierge facility in the Hartford area admittedly disassemble customers’ vehicles without a repair license, members of Connecticut’s repair and towing industries are taking their fight to Progressive’s doorstep.

And their message is clear.  Stop letting Progressive compete without making it comply with the repair licensing laws. 

Attorney General, Richard Blumenthal, is on board with the repairers and tow companies.  Literally.  Blumenthal is scheduled to give a press conference from one of the tow trucks.  After the press conference, the convoy is headed to Progressive’s Concierge facility in Newington, Connecticut — which Progressive’s website identifies as its Hartford Concierge facility. 

Unable to face the rumble, Progressive is reportedly shutting down that facility for the day.

Every new lawyer who has ever worked in a firm knows the terror of potentially writing a memorandum, brief, or making some representation of the status of a statute or case that is relied upon by others that turns out to be — well — wrong.  I’m not talking of distinctions or hair-splitting about the case; I’m talking about cases that have been overturned, vacated, or heavily discredited and statutes that have been repealed or superseded.  That’s a new lawyer’s nightmare and, for the obsessive-compulsive in the rest of us, that concern never quite goes away.

Apparently, that concern didn’t register with insurance representatives lobbying Connecticut’s Insurance and Real Estate Legislative Committee when they argued the Committee should not approve legislation drafted by the State’s Attorney General, Richard Blumenthal, to make the State’s “steering” law stricter.  Three different insurance representatives told the Committee that a New York statute N.Y. Ins. Law § 2610 with similar language had been stricken as an unconstitutional violation of insurers’ right to commercial speech.  What each of them neglected to tell the Committee, however, is that the District Court decision making that statement had been vacated, and, after several appellate court decisions, on remand the District Court had issued a different opinion refusing to enjoin the NY Department of Insurance from enforcing the statute, refusing to rule on the insurers’ First Amendment claims, and dismissing the lawsuit.

Even more troubling, the District Court’s new opinion reiterated the Second Circuit’s finding that insurers could not challenge the NY statute on facial grounds, indicating that the court’s original finding of a constitutional violation regarding the statute itself was in error.

The Second Circuit explicitly rejected a facial challenge to § 2610(b). That court noted, “to the extent that the parties [] present a facial challenge to § 2610(b), it is an ‘overbreadth’ challenge, and such a challenge cannot lie with respect to a regulation of commercial speech.” Allstate II, 261 F.3d at 153

Allstate Ins. Co. v. Serio, 2003 U.S. Dist. LEXIS 13541 (D.N.Y. 2003)

In other words, the insurance representatives’ statements were gross misrepresentations of the status of (existing) New York law. 

I guess I’m shocked because I wouldn’t dream of stating something to a government entity – certainly not something as damning as a violation of The Constitution — without checking, rechecking, and re-rechecking to make absolutely certain it was true.  But, when no one holds you accountable, I guess you feel that sloppy information presentation is perfectly acceptable.  If this is any demonstration of how well state regulated insurance operates, insurers can kiss the McCarran-Ferguson Act goodbye. 

Anyway, after all of these legal decisions, the NY Department of Insurance issued Circular 14 on December 4, 2003 plainly stating that the steering law was in effect and that it would be enforced per the interpretation of the NY Court of Appeals’ decision.  Seven months later in June of 2004, the NY DOI’s General Counsel issued an opinion that insurers would be in violation of the steering statute if they informed claimants their vehicles could only be repaired at a facility certified by the claimants’ auto manufacturers.

Yeah, that’s really a statute that was struck down for its unconsitutional language. 

The Allstate v. Serio cases, NY DOI Circulars, and NY DOI Opinion can be accessed via links below:

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Life is a highway.   Yes, it certainly is, and because of that, the law and cars seem like such a natural fit.  After all, you have rule framework for driving a car on any given highway – just like you have rule framework for being a citizen, living in a given place, and pursuing happiness.  The actual and metaphoric highways mesh.

Satisfaction Surveys are Just Big Lies:

Stephanie West Allen at the idealawg posts an insightful look at consumers’ responses to satisfaction surveys.  Do clients tell the truth when surveyed about satisfaction? The brain knows and it might be telling.   The study West Allen cites to notes that people often fail to tell the truth when responding to satisfaction surveys.  There is an interesting adjunct to West Allen’s post which is the issue that our bodies and brains often know and react to things long before our conscience knows anything. Anyone who has read Malcolm Gladwell’s “Blink” knows that the adaptive unconscious is usually far out in front of our laggard conscious minds when it comes to making determinations on anything.  Therefore, the question that arises about people’s responses to satisfaction surveys is whether they are intentional or unintentional falsehoods.

Which brings me to a very important issue.  Automotive News($) published a recent J.D. Powers survey involving only 5,752 consumers who had been involved in collisions and addressed their satisfaction about the repair experience.  The survey results suggest that people are happier with the collision repair experience when using insurer “direct repair program” shops or when they have received a referral from an insurer.  Part of the rationale given in the story in Automotive News for why consumers feel better about insurer recommended repair shops is that insurers investigate them and insist that they have the latest model equipment and best-trained technicians.  Holy cats, is that a sell job, because it is absolutely untrue.

While insurers put things in these direct repair program documents that say a repairer has to have the right equipment and training, that’s all for show in the event the AG’s office or some other consumer protection group gets hold of them.  The bottom line is the insurers could absolutely care less if you are using chains behind your repair garage to pull vehicles’ unibodies into alignment.  Insurers only care about getting a repair job done as cheaply as possible, and, often, if they can twist the repairer to perform an unsafe, but cheap, repair, they do it.  I would love to tell lawyers how many times I have seen insurance company representatives write an estimate of repair that calls for the “clipping” of the vehicle.  Clipping is the industry slang for “cutting the car in half horizontally, throwing away the damaged half and welding a salvage yard total-loss half onto the consumer’s vehicle, and handing the customer the keys.”  Ta-da!  And guess, what folks?  In the vast majority of states, that practice is not illegal.  Unsafe?  You bet.  Illegal?  No.  And the insurers’ attitudes about practices like these?  “No one says we can’t do it, and if it’s going to save us a buck, we’re going to do it.”  and my personal favorite, “We don’t repair cars, we just pay to have cars repaired.” – even though insurers dictate how vehicles are to be repaired to collision repair shops every day of the week.  If you are a collision repair shop that stands up for the consumer, insurers make your life a living hell.  And, they make the lives of consumers who try to patronize the responsible collision repair facilities hell as well.

You can see, therefore, the complete lack of value of the J.D. Powers survey.  The only reason those customers are satisfied with the insurer’s recommendation is because the insurers tend to leave shops in their “networks” alone and don’t play games with them by browbeating their customers, refusing to pay for necessary repairs, deliberately delaying sending an adjuster to review the damage for two or more weeks, and other lovely games.  And why do they leave the network shops alone?  Because those collision repair shops have signed documents that trade away many rights of the customers (unbeknownst to the customers), agree to use inferior parts, use salvage parts (including salvage airbags), and agree to fully indemnify the auto liability carrier for anything (negligence, intentional acts, diminished value, attorney fees, titling problems — oh yes, some of those clips are “front end” clips.  That means the VIN on your dashboard is a salvage vehicle VIN and no longer matches the registration or title of your car.)  Anyone who takes the insurer’s recommendation for a collision repair shop is asking for trouble.

Along those lines, Eric Turkewitz of the New York Personal Injury Law Blog posts about Anderson Cooper’sstory on Allstate Insurance and its aversion to actually paying claims   No, really?

John Shortell of the BodyShop Solutions blog has an enlightening post called More From Inside Nationwide.  A Manifesto That Threatens Termination for Appraisers Who Fail to Get With The Program about the realities of how insurers treat consumers, collision repair facilities, and their own employees.  Shortell even posts an email from a person identified as Paul J. Connell, Materials Damage Claims Associate Director ratcheting up the pressure on claims personnel and body shops.  Anyone who practices in the personal injury area will find Shortell’s post eye-opening.  As a final thought, PI lawyers, are you aware that many insurers use the cost to repair the vehicle as the basis upon which they offer soft tissue bodily injury claims settlements? So, you can see the additional incentive insurers have to keep repair costs as low as possible. 

Accidents:

In my day, babysitters earned about a dollar an hour.  No one paid social security, worker’s comp., or insurance – but that’s probably changed.  And if it hasn’t, maybe it should.  The Orange County Personal Injury Lawyer blawg recounts a sad tale of a babysitter who hit another car killing someone while picking up his employers’ youngest child from school.  Needless to say, the decedent’s family sued the babysitter but also sued the parents/employers.  Vicarious liability isn’t anything new, but how many times do even lawyer parents, desperate for a night out, stop to think, “what are the potential ramifications of this employment activity?”

David Giacalone has some meaningful information for people involved in accidents who want to handle the matter without the assistance (and cost) of an attorney.    DG must have a great sense of humor as the blawg is titled:  “shlep - the Self-Help Law ExPress”.  He also has an excellent post on how consumers can protect themselves in a used car purchase.  Although, Giacalone’s post contains much useful information for buying vehicles, the gigantic problem with the whole used car world is that there are NO standards dictating how vehicles are permitted to be repaired and NO used motor vehicle standards dictating “lifecycle motor vehicle safety” throughout a vehicle’s lifetime.

 J. Craig Williams from May it Please The Court reminds us that if you ski and get hurt, nurse your wounds and go home.  Assumption of risk is still the word of the day on the slopes, and suing the ski resort just makes you look stupid as well as clumsy.

Just Pull over and Keep Your Mouth Shut:

Carpundit says it like it is, and I just love that.  CP reminds sassy Harvard Law students that, in fact, Big Daddy Brother does have jurisdiction over any punk on the road and it really doesn’t matter if it’s a state road or a local one.  CP’s tip of the day for drivers: “when you see the blue lights flashing, pull safely to the right shoulder and come to a complete stop.  In the words of Chris Rock, If the police have to come and get you, they’re bringing an ass kicking with them.”   Jamie Spencer does a neat job of digging through the law to find out if a client committed a traffic violation by performing a U-turn at a location posted only “No Left Turn”.  I have to admit, trying to piece together state law and local ordinance is often a nightmare, and it makes for some wacky results.  This is an interesting read over at the Austin DWI Lawyer blawg.

Go Green!   The Green Business News brings us news about recent enactment of laws in the U.K. that require vehicle manufacturers to pay for the safe and environmentally appropriate disposal of motor vehicles. Autoblog reports that the President has finally drafted some fuel economy legislation which would allow regulators to demand higher mileage standards from automakers.

Government Officials We Think Have Drive or Have Job Openings

 The AutoProhpet lauds Michigan AG, Mike Cox, for doing what every state should do — ban those stupid (and inaccurate) red-light camaras.  Boy, talk about a total walk around the hearsay rule.

The Antitrust Review points out a bunch of job openings in that easy-to-parse-through land of antitrust law.  In addition to which, the AR tells us that the European Court has upheld a Beer Cartel Fine.  Look, if the U.S. can finally “free the grapes” and let wineries ship directly to consumers, then I think the European consumers should be entitled to “free the hops.”

Revelations (Oh, my goodness, it’s just what I wanted):

GAL of the Greatest American Lawyer has toyed with revealing his (and I do believe it is a “his”, although GAL may be more of a hint than one might imagine!) anonymous self.    There was even a contest, closed yesterday, winners to be announced early this week.  GAL begged not to be outted by those in the know until post-revelation.  OK, I’ll give you all a real heads-up.  It’s me!  Why do you think I’m hosting this blawg review?

Also, anyone interested in what interests gay people in the world of automobiles must visit Gaywheels.com which bills itself as the “gay-friendly automotive resource”.  The Truth About Cars has a fun dish on some woes at ToMoCo (you know, Toyota Motor Co.) involving “memogate“.

Vorsicht bei der Abfahrt  (Danger, Will Robinson, Danger!)

Overlawyered keeps us up-to-date with warning labels the whole family can enjoy, while Jonathan B. Wilson comments on a Georgia Social Networking Bill designed to keep minors safe.

Joe Sherlock of The View From Behind The Windshield warns about property loss damage that can occur to your car just by going through an automated car wash.

Nicole Black of Sui Generis–a New York law blog warns of issues involving ethical issues involving NY’s lawyer advertising rules and their application to a home office. Diane Levin of Death and Taxes Blog talks about her thoughts on Associate Salaries.

Heresy (I prefer to take the bus, thank you very much):

“Blessed are the few of words, for they will be welcome anywhere.”  Lawyers talk too much (just look at this Blawg Review!)  If you don’t think so, marry one.  Imagine if other professions bored spouses and friends with the minutiae of earning their daily bread, e.g. “Then I typed the letter “q”, then a “u” . . .” or “I put the strands of DNA, that I had previously teased from the extracting solution, into a test tube . . .”  Honestly, how does the rest of the world stand us?  But now I have a hero.  His name is Donald A. Van Sullehem.  And courtesy of the (new) legal writer,  Here is his elegant response to a brief, and one which, if I weren’t so much of a coward, I would have written in some of my own cases.

Brief in Opposition to Plaintiff’s Motion for Reinstatement
Plaintiff has got to be kidding.
Respectfully submitted, Simpson & Moran, By Donald A. Van Sullehem, Attorneys for Defendant, Birmingham, Mich.

Basquette talks about why blogging isn’t for everyone in put down the blog and step away from the computer, ma’am… and Charles H. Green emphasizes the power and beauty of silence at the Trust Matters blawg.

By a whisker (as in, “I just missed that guy by a”):

Julian Ku discussed the hang-up concerning the words “annihilation” versus “genocide” in the debate over the mass killings of Armenians during the Ottoman regime in Turkey.  Ken Adams of AdamsDrafting really splits hairs over the use of the words “termination” or “expiration” in contract drafting. 

Warm and out of the wind (if it’s a convertible, the top is up):

The Wired GC takes aim at the Government Accountability Office for being miffed that the DHS counsel wants to review documents before production and be present at employee depositions. Stephen M. Nipper of The Invent Blog gives us the happy news that PayPal is trying to compete with Google’s new “Checkout” program by offering a $15 rebate on goods purchased from participating retailers.  Luckily for us, some of those retailers include purveyors of law books and legal aids.  Where the heck were these companies when I was in law school paying full bore for every book I had to use?   Sox First continues to report that Citigroup has its hands full trying to defend itself against the allegations of the Australian Securities and Investment Commission that it engaged in insider trading and failed to manage conflicts of interest.

Grievances (Why the hell didn’t you fill up before we left?):

J. Daniel Hull of What About Clients?™ flares about whether lawyers are delivering real services to clients in an economy that now seems exclusively about selling services on a global level.  Hull’s comments immediately reminded me of a fascinating discussion my friend Leon Polott of 5iTech and I had when we were the Chair and Vice Chair respectively of the Cleveland Bar Association’s International Law Section.  At the time, Leon and I discussed the client zealous representation and potential ethical issues arising from the ever-present (and in use) bottle of Vodka on the meeting table in a Russian negotiation.  At what point should there be a different code of conduct and professional responsibility for lawyers representing clients internationally?   

S. Alan Childress points out the grandstanding, childish, and jerry-springerish activities that some judges have begun to exhibit in their occupation of the bench. While paid participants in the legal world continue to pay lip-service to concepts of professionalism and collegiality, the migration of the practice of law to the business of law rewards those who can draw the most dollars by their outlandish behavior.

My own grievance, of course, is that issues I care about are once again being upstaged by that minx, Anna Nicole Smith (aka Vicky Lynn Marshall).  It’s bad enough that the U.S. Supreme Court deemed her dispute over her ancient deceased billionaire husband’s estate to be more review-worthy than a genuine issue over the denial of due process and question of the propriety of a state supreme court justice casting the deciding vote overturning a billion dollar consumer judgment against one of his supporters, State Farm.  Now, the week I am hosting blawg review, she dies, leaving questions about the cause of death, the paternity of her new baby, and the quagmire of her former husband’s estate and her own.  As a former probate, trust, and estate trial lawyer the latter is undeniably appealing to me.  Nonetheless, couldn’t ANS/VLM have done this on someone else’s watch?  I think I will have to take this personally.

Tune in Next Week

Blawg Review has information about next week’s host, and instructions how to get your blawg posts reviewed in upcoming issues.
 

Don’t we all think it’s important to know who actually benefits from side deals before we give any company our business?  You bet we do.  I don’t think anyone liked hearing that commercial customers were paying substantially too much for insurance because of insurance broker/insurer arrangements that paid enormous commissions for fraudulently placing insurance with certain companies.  It makes us all wonder if we are really getting a good deal on our individual insurance, too.

So, it’s about time some regulatory entity looked at the relationship created between insurers and collision repairers by “direct repair programs” that consumers are vigorously encouraged to patronize.  The Illinois Attorney General’s Office, Department of Consumer Protection is looking at the agreements insurers get repair facilities to sign to become members of the insurers “network” of “preferred” shops.  Insurers push consumers to these network shops for reasons that are good for the insurer, but not necessarily good for the consumer.  To get into these networks, repair shops have to agree to give the insurer discounts, look for “betterment” (i.e. the flip side of diminished value), agree to use aftermarket (non-original equipment manufacture), salvage, or rebuilt parts, and/or agree to indemnify the insurer.  The scary part of the indemnification provisions in many of these agreements is they require shops to indemnify the auto insurer for anything relating to the claim.  That could mean intentional acts, attorney fees, inherent diminished value payments — all things not associated with whether the repair properly fixed the car.  Most importantly, the way insurers market these networks is to tell customers how beneficial it will be to the customer — which may or may not be the case.

Certainly, an insurer will tell you that an adjuster will address the claim right away and you can get the repairs underway immediately.  OK, that’s probably good for both of you.  It saves the insurer money on the rental car expense and helps the customer obtain a prompt repair.  Yet, sometimes the insurer uses this languange and deliberately withholds sending an adjuster to a non-network shop to impress upon customers how difficult it will be if they choose to have their vehicles repaired at these non-”preferred” facilitites.   Nonetheless, insurers also typically say that you get a guaranteed pick-up date and that they will guarantee the repair.  Well, that may sound good, but is it?

A guaranteed pick-up date is good for the insurer because it allows them to minimize rental car expenses and have certainty in the reservation of the claim.  However, the insurer often determines how long it thinks the repair should take, not necessarily how long a proper repair must take.  Customers assume that when they pick up the vehicle it has been repaired correctly and safely — which simply may not be true.  Because the repair shop has to absorb any additional rental car expenses or other fees if they go over the projected ready date, they have every incentive to push the customer’s car out of the door by the pick-up date, ready or not, safely repaired or not.  What if a part is on back order and it will take two weeks to obtain the necessary part?  Again, the incentive for the shop is to find something, anything, that will substitute for that partt rather than be penalized by the insurer for failing to meet the deadline.  Overall, the danger to customers likely outweighs the benefit of an artificial pick-up date.

Then there is the warranty/guarantee the insurer promises.  Virtually all body shops guarantee their work.  After all, just how long would a repair shop stay in business in a free market economy if they didn’t satisfy customers?   (Of course, this has changed completely with insurers selecting repair shops because they don’t necessarily reward for the same things consumers do.)  So, this alleged guarantee is nothing new, other than the fact that the insurer now says that it guarantees the repair.  Well, the insurer typically sends the customer back to the same body shop if there is a problem — which is what the customer would have done if they had selected the repair facility.  So, insurers are piggy-backing on existing repair shop guarantees. The hard part is to get an insurer to truly honor one of these “repair guarantees”, rather than just dumping the problem back in the lap of the customer and the body shop.  Of course, the obvious question is, how well do you think the repair shop that butchered your car in the first place will fix it the second time around?  Or the third? Or fourth?

Illinois AG examining insurer/repairer relationships - Consumer protection statutes are center of the debate - ABRN (Automotive Body Repair News)

 Have you any recommendations as to my situation?

Last year while driving my new 2005 Toyota X runner truck I had a 30 mph fender bender on the 405 frwy that damaged the left front head light, fog light, bumper, hood left corner, the left tower attached to the frame to secure the also damaged fender & skirting. No damage to the right side at all. Although the airbag deployed the impact caused no damage to the radiator or engine and the vehicles driving ability otherwise was not affected. The vehicle was taken to the dealer for repair. The estimate to repair the damage was twenty three thousand dollars! My insurance company informed me that the vehicle damage was severe. Although I disagreed, they declared it a total loss. I retained the vehicle by paying the amount the insurance expected to get from the sale of the damaged vehicle. I subsequently had the vehicle repaired at another body shop for one third of the cost estimate accepted by my insurance provider.                  

Forced to accept a salvage title to renew license.  Although the actual damage was far less than was accepted my insurance provider, they are insistent on a salvage title. Even though it does not warrant the change. This adversely affects me. I am unable to drive the vehicle unless I accept the title change and if I agree I am loosing by having a vehicle with a diminished vehicle value associated with a salvage title. 

 I have not been able to renew the registration because the DMV has a pending salvage title change notice on file from my insurance company. DMV has told me all I need is a letter from the insurance company withdrawing the change, however my insurance company is unwilling to change their decision even after I have proved that the damage estimate was wrong. I have spoken with the state insurance commissioner’s office who suggested I write directly to the insurance company main office headquarters. This resulted with them sending me back to another adjuster who has said they will again look at it however he informed me that there obligation as the insurer is only to the actual amount of the damages and although he didn’t actually ’say it’ he eluded to the potential that I may be responsible to repay them if a inaccurate estimate was paid. I feel like they are punishing me for their decision to pay an exaggerated estimate (I objected to their decision in the first place) and possibly, may use this as a condition (if they are willing) to release the salvage title determination. Can you offer any suggestions that may help get my title released from the ”salvage” determination and help the insurer accept responsibility for their decision. Not try to recover from me for their decision. This is a very time sensitive mater that I am dealing with, any thought regarding this is much appreciated.

Money received from Safeco’s diminished value settlement in Georgia helped fund the Georgia Mock Trial Competition in Lawrenceville last week. Jonesboro team wins state mock trial competition | ajc.com

The Pennsylvania Collision Trade Guild has launched a new website to give consumers and repairers an avenue to address problems with the manner in which damage appraisers do their jobs. Tired of appraisers ignoring regulations and state law and interfering with how vehicles are to be repaired, the PCTG is naming names, posting formal complaints on the site, and sending copies of those complaints to state legislators.

After reading many of filings, the actions complained of begin to sound eerily similar, with the customer trapped as the hapless pawn between the people who know how to fix cars, actually fix cars, and accept the liability for doing so and the people who think they know how to fix cars, do not fix cars, and accept no liability for the repair. It’s quite clear to me who should have the final say on how to fix the car in that mismatch.

PCTG - Pennsylvania Collision Trade Guild

Justice Karmeier may be getting a surprise — and it’s not more money for his campaign coffers. Instead, it may be a summons to account for his actions before the Illinois Judicial Inquiry Board.

Common Cause filed a complaint Tuesday (February 7, 2006) asking the Illinois Judicial Inquiry Board to investigate Justice Lloyd Karmeier’s participation in the decisions overturning the two biggest class action verdicts in Illinois history, Avery v. State Farm Mutual Insurance Co., 216 Ill.2d 100, 835 N.E.2d 801 (2005) and Price v. Philip Morris, Inc., No. 96236, 2005 Ill. LEXIS 2071 (Ill. S.Ct. Dec. 15, 2005).

I was gratified to discover that I am not the only person outraged by what I see as the inappropriate participation of Justice Karmeier in these decisions. Independent film director Wayne Ewing has released his documentary “Benched: The Corporate Takeover of the Judiciary” about the contentious election and the corporate interests that buoyed Lloyd Karmeier to the Illinois Supreme Court bench. Common Cause, likewise, was pointed in its assertion that his participation in these decisions violated Illinois’ judicial cannons.

Common Cause spotlights a glaring issue with Karmeier in that he participated in Avery when it seemed he knew his vote was imperative to overturn the case, yet he recused himself from participating in the Gridley v. State Farm Mutual Insurance Co. decision bacause the necessary majority already existed to make the case disappear without his vote.

The Common Cause complaint is supported by legal ethicist Geoffrey Hazard, Jr., which means that, with Monroe Freedman’s agreement, the gurus of legal and judicial ethics are stacked up against Justice Karmeier. More damning for him, however, is the assertion on page 4, footnote 1 in the CC complaint that:

In response to a 2001 request by the then President of the Illinois State Bar Association to the Chair of its Bench and Bar Section Council, a subcommittee was appointed to develop standards defining an “excellent” judge. Justice Karmeier became Co-Chair of that subcommittee and co-authored the standards, which included the statement that,
“A judge must always avoid even the appearance of bias or injustice because confidence in the entire system of justice is diminished when any single judge engages in conduct that lowers public trust in the fair and impartial administration of justice.”

I guess that means Karmeier is not an excellent judge, by his own standards. Or maybe it’s easy to espouse ideals until someone comes along with enough money to put them to the test.

HT to Jerry Brown

If the expression “worser and worser” means anything outside of the world of Lewis Carroll, then it certainly applies to the participation of Illinois Supreme Court Justice Lloyd Karmeier in the decision overturning the $1+Billion decision rendered in favor of consumers in Avery v. State Farm Mutual Ins. Co. According to the Avery Plaintiff’s Petition for Certiorari filed with the U.S. Supreme Court, not only was Lloyd Karmeier’s election campaign heavily funded by direct and indirect contributions from the insurer and its associates, but Karmeier was actually recruited to run for the vacant seat on the Illinois Supreme Court bench by someone connected to State Farm. As a result of State Farm’s involvement in Karmeier’s election, Karmeier’s refusal to recuse himself from participating in the decision, and his role as the deciding vote-caster in that decision, the Avery Petition asserts that they were stripped of Due Process.

The Petition for Certiorari alleges that two people connected to the insurer, Bill Shepherd and Ed Murnane, and organizations founded by Murnane, including the Illinois Civil Justice League and its political action committee JUSTPAC, were well aware of the pendency of this lawsuit and the enormous economic impact it would have if the appellate decision were permitted to stand. It also quantifies massive contributions to Karmeier’s campaign from State Farm, JUSTPAC, and the Illinois and U.S. Chambers of Commerce.

Although the ICJL characterized support of Karmeier as a tort reform and clean-up-the-judicial-hell-holes issue, it really only seems to care about cases turning out in a pro-business fashion. Here is a telling quote from ICJL’s JUSTPAC page:

JUSTPAC will work to provide support to judicial candidates who are committed to changing the judicial environment in Illinois, candidates who want to fix a broken system and restore honesty and fairness to a system that too frequently has been controlled by greedy personal injury and class action lawyers.

ICLJ doesn’t appear to actually care about what is objectively fair, despite its mission statement to the contrary. Hypocrisy is the death of justice, and the manner in which the Avery result was contrived isn’t justice. It was the hubris of manifest destiny.

Let’s take a look at capitalism gone awry and wonder how consumers can ever get justice in the “honest and fair system” some of these organizations desire to create.

According to the Petition, Karmeier raised and spent at least $4.8 Million in the election campaign. Here is how much of the contributions broke down as presented by the Petition:

State Farm and people/organizations directly connected with the lawsuit (employees, attorneys, Amici, and Amici attorneys) contributed $350,000;

JUSTPAC gave Karmeier $1,191,453 (which represented all but $500 in funds raised by the political action committee);

Illinois Chamber of Commerce contributed $269,338;

U.S. Chamber of Commerce contributed money to the Republican Party of Illinois of which $1,300,000 was funneled straight to Karmeier’s coffers. (If I understand the Petition correctly, State Farm employees served as Directors for both chambers.)

American Tort Reform Association contributed $415,000;

Illinois Coalition for Jobs, Growth and Prosperity gave $150,000;

Illinois Insurance Political Committee contributed $6,000. (The Petition says that State Farm was a member of and contributor to each one of these three additional contributors.)

Looking at the numbers, it is clear that Karmeier received $350,000 from persons/companies with a direct financial interest in the outcome of the suit, (i.e. a party and its supporters.)

Add in the money from JUSTPAC (which the Petition alleges not only had a connection to State Farm but is associated with the person who recruited Karmeier to run – at least in part, because he felt the Avery decision was unfair and should be overturned), the Illinois Chamber of Commerce, and the U.S. Chamber of Commerce (both of which ostensibly had State Farm employees serving as Directors) and you arrive at a whopping $3,110,791.

Put that together with the money from each of the three entities of which the Petition says State Farm was a member and contributor, and we top out at $3,681,791 – just about 75% of all of the money contributed to Karmeier’s campaign.

Now, I certainly don’t think that every penny of almost $4 Million was actually contributed by State Farm, but the involvement of a party to a significant pending case with so many of the major contributors to the campaign of a new Supreme Court Justice does more than raise a few eyebrows. It smells. And the smell is not a good one.

As I have said before Karmeier simply had no business participating in the Avery decision, and the fact that he cast the deciding vote that wiped the decision away as if it had never existed, is an absolute travesty of justice – as well as what I see as a blatant ethical violation, and in this I apparently have company from the authors of the SCOTUS blog.

Contrast the recruiting of Karmeier, the funding outlined, Karmeier’s refusal to voluntarily recuse himself from the Avery panel and absolute refusal to recuse himself when asked by one of the parties, the fact that he was not a member of the Supreme Court bench when the matter was accepted for review, briefed and argued, with Karmeier’s own statements quoted by Kevin McDermott in his article “All Eyes on the Fifth” in Illinois Issues, September 2004, which McDermott attributed to Karmeier’s campaign website:

I think I am typical of most people from Southern Illinois when it comes to our system of justice. We want it to be fair. We want it to be impartial. We want a level playing field . . . We don’t want any hints or suggestions that our system of justice is being used or influenced by powerful politicians or by lawyers or by any special interest group.

If this is Karmeier’s idea of being typical of people from Southern Illinois and of not having “any hints or suggestions that our system of justice is being used or influenced . . . by lawyers or by any special interest group”, it really doesn’t say much for the land of Honest Abe. I’m glad I live somewhere else.

Special thanks to Ray Lehmann who wrote to me looking for a copy of the Petition and ended up providing it to me.

Illinois is considering SB 1839 which would ammend the Illinois Vehicle Code to require the State’s Department of Transportation to supply vehicle-specific accident data for vehicle history reports. Of course, this bill has its limitations because it only requires the reporting of police-reported accidents. But, that’s better than nothing — which is what Illinois has now.

Now if the coalition that is supporting this bill really wanted to get serious, they would ask the legislature to require the disclosure of insurance claim related information as well.

After an 8 month respite, the California Legislature is once again being asked to consider an act that would effectively declare certified aftermarket parts to be equal to the parts originally installed on the vehicle when manufactured. Sheesh, the topic that never ends.

AB 1163 Assembly Bill - Status

Yesterday, the Plaintiffs in Avery v. State Farm Mutual Automobile Insurance Co. filed their Petition for Certiorari asking the U.S. Supreme Court to take jurisdiction to determine if Illinois State Supreme Court Justice Karmeier’s participation in the decision reversing the $1+Billion case against State Farm violated The Constitution. I have discussed this issue repeatedly (so much so that my sister just says “Avery” when she wants to get a rise out of me) here, here, here, and here. The issue before the Supreme Court, however, is well stated by the SCOTUSblog:

Should an elected judge, who accepts large campaign donations, sit on a case that directly affects the financial or business interests of the donors and their associates? Put as an ethical question, the answer would seem to be obvious: No. But the Supreme Court is being asked to rule on that question as a constitutional issue: does the due process clause create a duty to recuse in such a situation?

SCOTUSblog agrees with noted legal ethist, Monroe H. Freedman of Hofstra’s law school that the obvious answer to whether it is ethical for a judge to fail to recuse himself from sitting in judgment on a benefactor’s case is NO.

Perhaps now that the issue is receiving national attention by its appearance before the U.S. Supreme Court, the various Illinois grievance committees will actually look into what I see as a blatant violation of the Illinois Code of Judicial Conduct, Cannon 3 (Illinois Supreme Court Rule 63).

Scotland doesn’t just have J.K. Rowling — it’s got diminished value recovery as well!

Gildeas Solicitors of Glasgow, Scotland offers professional services for all aspects of accident claim work, from personal injury to property loss. Quoted recently from a Scottish paper:

As another example, a client of the firm had their highly expensive car damaged in an accident.

Although all repairs were carried out to the best possible standard the client’s vehicle would never be worth its previous value.

So Gildeas Solicitors appointed an engineer to assess the case, before ensuring an award of £6,000 to the client to minimise the vehicle’s diminished value.>

The Daily Record - NEWS - IT’S NOT AN ACCIDENT FIRM’S BEST

The California Certified Aftermarket Parts Bill (AB 1163) is again rearing its ugly head. 1163, which had barely any support last year (and there is a good reason for that, too — it’s a lousy bill) is once again on the hearing schedule for consideration by the Businesses and Professions Committee.

Didn’t we point out enough foolish and undesirable things about this bill last time to make it go away permanently? Obviously, not.

At the National Conference of Insurance Legislator’s (NCOIL) last hearing (November 17-20), the Property & Casualty Committee scrapped the idea of adopting a certified aftermarket parts model act in favor of a scaled down Resolution declaring that the Committee is “in favor of competition in the marketplace” and that it expects insurers to “stand behind” any parts they wish to see used in vehicle repairs. (Whatever that means.) At least now we can all just go back to work.

Despite State Farm Mutual Insurance Co.’s mea culpa disclosure that it failed to obtain salvage titles for vehicles it had previously declared a “total loss” and it’s agreement with forty-nine
States’ Attorneys General releasing State Farm from AG’s claims for consumer protection violations, the insurer is looking down the barrel of a loaded lawsuit. Pittsburgh Consumer Sues State Farm Insurance for Selling Salvage Cars Without Disclosure.

According to the Complaint, Plaintiff, Robert Beaves, paid $14,026.43 for a 2001 Honda Civic LX with 11,063 miles. Not only was Beaves told by the dealership that the vehicle had never been “salvaged, flooded, altered or otherwise damaged”, but Beaves’ attorney, Craig Thor Kimmel of Kimmel & Silverman P.C., says it was also “represented as a Honda certified pre-owned” Civic.

If the vehicle was sold as a “Honda certified pre-owned” car, then this is another black eye for the manufacturer certification programs. However, if this vehicle was sold to Beaves as a “certified pre-owned Honda” that may be a Civic of another color. Capitalizing on the CPO market for used cars, some enterprising companies offer certification programs that are advertised as enabling dealers to certify every car on their lots — irrespective of whether they meet the manufacturers’ certification standard. The key to these things is to know who is doing the certifying and what the criteria are for a passing grade.

Despite the dealer’s representations, the 2001 Civic had been previously declared a total loss by State Farm but was never issued a salvage title. Until now. Beaves unexpectedly received notification that the car had been wrecked and extensively damaged.

25. On or about September 15th, 2005, the Commonwealth of Pennsylvania, through the Attorney General’s office, advised Plaintiff that his vehicle had been the subject of an insurance claim before his purchase, and the damage so extensive, that it was supposed to be classified as “salvage” on the Title.

Now the State of Pennsylvania is going to oblige and turn Beaves’ clean title (representing something of real value) into a virtually worthless piece of paper. State Farm’s offer to make it right? $2,700 — not even remotely close to the retail value of a 2001 Honda Civic LX. In an interesting twist, Beaves had insured the vehicle through, you guessed it, State Farm. Kimmel’s firm has set up a website for others who may be in the same situation and wonders aloud whether State Farm is really acting like a “good neighbor”. What I want to know is if State Farm is going to refund part of the premiums Beaves paid, as the Civic was insured at a higher premium with its clean title than it would have cost to insure it as a salvage car.

While the various Attorneys General have marveled at State Farm’s unprecedented voluntary disclosure, it appears that what motivated State Farm was an earlier lawsuit alleging that the insurer’s failure to have these vehicles properly titled was deliberate. I will be discussing that issue and others with host Mike Harber and fellow guest Tony Lombardozzi on KVI 570’s Crash Talk Saturday, November 19, 2005 at 5:00p.m. Pacific Time. KVI 570 has streaming content, so log on and join us.

The Indiana Supreme Court ruled last Thursday that a policy issued by Meridian Security Insurance Company did not require payment to its insured (first party) under the collision coverage provision for diminished value in addition to the cost of repairing the vehicle. In Allgood v. Meridian Security Insurance Company, 2005 Ind. LEXIS 976, the Indiana Supreme Court held that the insurance contract at issue was not ambiguous and did not require compensation that restored the insured’s vehicle’s value as well as performance and function.

Nonethless, the Indiana high court makes plain that third parties are invariably entitled to the payment of diminished value as part of the compensation necessary for them to be “made whole”.

Allgood is correct that under common law tort doctrines, the measure of damages recoverable from a tortfeasor is generally adequate compensation for the loss sustained. She is also correct that under Indiana law that measure of damages includes diminution in value.

Allgood at *4.

While insurers must be satisfied that companies issuing policies written like Meridian’s are relieved from paying diminished value to first parties under the collision provision, they can’t be thrilled with the Indiana Supreme Court’s unequivocal statement that victims of negligence are entitled to diminshed value as part of the necessary compensation to make those victims whole. This means that anyone who is not at-fault in a two or more vehicle collision in Indiana should make certain they demand complete compensation (repair cost and diminished value) from the at-fault driver and his/her insurer.

The National Insurance Crime Bureau (NICB) is providing access to its database to allow consumers to check a vehicle identification number (VIN) or hull identification number (HIN) for Katrina and Rita hurricane-related damage. Although free, consumer access is limited to discovering whether an identification number is associated with a hurricane-related claim. The information does not include the type or amount of damage — only that a claim is associated with that ID number.

The NICB’s agreement to provide access to consumers is significant and unprecedented. The NICB does not make its information publicly available; and unlike private commercial databases offering vehicle histories that glean most of their information from public sources, such as police reports and motor vehicle departments, the NICB’s data comes directly from the source — the insurers that pay the claims. This is information to which neither CarFax nor AutoCheck have direct, steady access, and both companies would drool to be able to offer consumers the type of information that the NICB has.

There are two major limitations with the information provided by the NICB: The first is that you will only find out if the VIN or HIN is associated with a claim. Consumers are not given access to the specifics of the claim, like the type of damage or the amount paid. This means that a car that had been scratched by tree branches and had to have its hood repainted will be flagged exactly the same way as a car that was completely submerged in water and raw sewage.

The second limitation is that not all entities that are members of the NICB have agreed to allow their claims information to be searched. However, a number of member insurance companies have agreed to allow the NICB to release their claims information in this limited way, and the ability to search just part of the NICB’s database is an enormous boon to consumers that they simply cannot get anywhere else.

The NICB members participating in this database are:

Allstate
GEICO
Liberty Mutual
Progressive
St. Paul Travelers
The Republic Group
CoPart
Insurance Auto Auctions
MetLife
Safeway Insurance of Louisiana
State Farm
USAA
Farmers Insurance
Imperial Fire & Casualty
Nationwide
Sentry
The Hartford

This is a great step in the direction of total disclosure (OK, transparency for you corporate speakers), and these insurers deserve praise for helping consumers protect themselves by releasing even a small part of their claims information.

So, if you want to get the best handle on whether a particular VIN is potentially a recent hurricane-flood car, motor on over to the NICB homepage to run that VIN against the holy grail of vehicle damage databases.

Young Trucking, a commerical company, is suing two Indiana University Students for the diminished value caused to its dump truck as a result of an accident allegedly caused by the students.

Diminished Value: Not just for the little guy.

TheIndyChannel.com - News - Company Sues Students After Car Wreck

Tom Chappell, a thirty year veteran of the insurance and risk management industry warns that failing to maintain aircraft maintenance logs can diminish the value of your plane by 20%. And that’s just for failing to keep adequate maintenance logs, not for damage.

Here is a snipped of what he said on the topic from The Unappreciated & Ill-Defined Aircraft Maintenance Log which appeared at the AVweb on October 9, 2005:

A reconstructed set of maintenance logs that are properly documented may satisfy the
FAA but does it satisfy that potential aircraft buyer to whom you may sell your aircraft?
The true loss is in market value or market acceptance. Diminution of value is just as real
with incomplete logs as it is in an aircraft with damage history. After all, why should a
potential aircraft buyer pay you an average retail price for your aircraft with missing or
reconstructed maintenance logs or damage history if he can buy another aircraft that is
clean and complete? So a discount is expected. How much? It depends upon the age,
value, make, model, and availability of the aircraft. If the market is saturated with like
aircraft, you may have to discount your aircraft drastically in order to make it attractive
to a buyer. So the 20% diminution of value estimated by my dealer friends may be very
thin.

I appreciate the statement from an insurance professional with decades of experience that the concept of diminished value is real and quantifiable. Of course it is. Anyone given the purchase option between two identical pieces of chattel (except for the prior damage of one) at the same price is NOT going to choose the damaged one. The only way to make the previously damaged product attractive to a buyer is to offer a substantial discount off the retail price of a good one.

The quoted article first appeared in Aviation Insurance & Risk Management, Summer 2005

Contrary to what MSN.com splashed over its front page last Saturday (which was a reprint of a 2003 article from Bankrate.com), your right to recover “diminished value” does not necessarily depend on where you live. That may be true when you are trying to recover diminished value from your own insurance company as the “at-fault” driver, but it is not true when you are claiming diminished value as the innocent party.

“Diminished value” is the term given to the automatic decrease in value caused to your vehicle by virtue of the fact that it has been involved in an accident – no matter how perfectly it has been repaired. This is often referred to as “inherent diminished value,” because it is not remedial. That is, nothing can make it go away. There are other things that can contribute additionally to increase the automatic diminished value suffered by a collision. Those things can be a poor repair performed by the body shop and/or an insurer’s refusal to pay for a complete repair or required use of generic parts. Both of these later varieties do not automatically occur and are potentially remedial. As a result, the diminished value most often discussed is inherent diminished value.

Just the facts, Ma’am

What has your state of residency got to do with whether you can recover diminished value? Well, if yours was the vehicle that was struck (not at-fault for the collision) absolutely nothing. As the innocent party, you are entitled to be “made whole,” which means putting you back in the position you were in immediately before the accident – and, of course, includes giving you back the total value of your vehicle. Simply paying for the repair can almost never do that.

As the innocent party, you are typically referred to as a “third party” when the other driver’s insurance company is involved. When you are claiming against your own insurance policy, you are a “first party.” A third party’s right to claim diminished value stems from a legal theory of negligence. A first party’s right, if any, to claim diminished value stems from a legal theory of contract. And these distinctions are significant.

Here’s the thing: If someone rear-ends your car, the at-fault driver’s insurer may step in and tell you to have your car fixed. But the insurer does not have the right to dictate the terms of the repair or to limit your recovery. In fact, the insurer is not really involved in the situation, and this is why. If you were to file a lawsuit to recover for the entire decrease in value of your vehicle – cost of repair, diminished value, etc. (and loss of use) – you would not name the at-fault driver’s insurance company, you would have to name the at-fault driver. That person’s insurance company has an obligation to pay (on behalf of its insured) for everything for which it’s insured/driver becomes liable, up to the policy limits.

Insurance representatives frequently fail to make any distinctions between what is owed to the insured and what is owed (on behalf of the insured) to a third party. Third parties are entitled to be made whole. The insured is only entitled to what the insurance contract provides – which in some states has been interpreted as the cost to repair or replace the vehicle, not to restore the value.

The bottom line is that if you are the at-fault driver trying to recover against your own insurer for the diminished value caused when you crashed into someone else, your ability to recover the diminished value is dictated by the insurance contract provided it is not violating the public policy of the state. Georgia allows first parties to recover diminished value even when you are the at-fault driver because the Georgia Supreme Court has decided that public policy dictates that auto insurance coverage insures value, not just a repair. Florida, Maine, and South Carolina, for example, take the opposite approach and do not require an insurer under an ordinary insurance policy to compensate at-fault drivers for the diminished value caused to vehicles.

But don’t be fooled. No state has said that you cannot recover diminished value if you are the innocent third party and any insurance claims representative or department of insurance telling you otherwise is WRONG.

Plaintiffs in Avery v. State Farm have asked the Illinois Supreme Court to reconsider its August 18, 2005 decision overturning the $1 billion+ jury verdict. The basis for the rehearing request is Plaintiffs’ contention they were denied due process by the participation of Justice Lloyd Karmeier in the decision. Karmeier is a newly elected Justice who was purportedly well-funded by State Farm (directly and indirectly) in his campaign. Among other contributions that Plaintiffs say can be traced to State Farm, its employees, and its counsel, Plaintiffs cite to a JUSTPAC contribution of over $1.1 million. According to Plaintiffs, JUSTPAC is an organization founded by State Farm lobbyist and attorney, Bill Shepherd.

Plaintiffs had asked Karmeier to recuse himself from participating in the Avery decision prior to its release, but the new Justice refused. Instead, he cast the deciding vote, giving State Farm cause to heave a big sigh of relief.

Justice Karmeier’s decision to participate in the opinion was certainly a foolish one. Ethically, lawyers and judges are charged with the obligation to avoid “even the appearance of impropriety” and we must tread carefully in our comments and actions to ensure we do not undermine the public’s faith in the judicial system. What could possibly create the appearance of impropriety more than a justice participating in a decision overturning his alleged benefactor’s obligation to pay over a billion dollars to consumers? Additionally, what could possibly undermine the public’s faith in the judicial system more than the suggestion that justice is for sale, as long as you can pay enough?

Perhaps if the Illinois Supreme Court decision overturning Avery were scholarly and well-reasoned, there would be much less ammunition for Plaintiffs. As it stands, however, the Illinois high court turned out an extremely shoddy product that has more holes than swiss cheese, and to be given such a poor result — after waiting years for the decision and conveniently not before Justice Karmeier was elected — raises serious questions about the propriety of the opinion.

I have commented on this opinion here and here and just wanted to add another tidbit that relates to the IL high court’s idea that “like, kind, and quality” doesn’t mean equal to the original equipment manufacture parts. I stumbled across this and was amused to find that even according to insure.com, Illinois law requires “[n]on-OEM parts must be of ‘like kind and quality’ to OEM parts.” It just has to make one wonder if the Illinois Supreme Court even knows its own State’s law.

HT Collision Week

Insure.com Car Insurance - Official site.

Katrina has now passed but in her wake she left a good deal of damage. With cities like New Orleans under water, you can bet that we will see a tidal wave of flood cars in the next six months. Unfortunately, most states do not require flood cars to be salvaged, and many states do not have a title brand for a vehicle involved in a flood.

As always, the RiskProf is on top of the insurance issues and notes that auto insurance prices are predicted to increase in the aftermath of Katrina. Just think of all those flooded personal and fleet cars that will affect claims payouts. According to a story from The USA Today, quoting a senior VP of Eqecat, “There will be tens of thousands of cars with flood damage”, and the problem estimating auto claims “is that cars move.” And there, of course, is the rub.

We won’t know for some time what the auto insurance-related costs of this storm will be. However, we are unlikely ever to know what the real cost to consumers is because many of those affected vehicles will be sold without any disclosure or indication on the title that they are flood vehicles. As a result, the problems, expense, and misery will be passed on to others who have no connection with Katrina.

How can this happen? Easily. Initially, understand that vehicles typically only receive a “flood” brand when they are salvaged. That means that the vehicle has to be first declared a total loss and the flood designation will only indicate that it was totaled as a result of water damage as opposed to collision or other cause. Yet, there will be thousands of cars that were flooded but will not be declared a total loss. Most of those vehicles will escape having their titles branded to indicate that, while not declared a total loss, they were immersed in water to some significant degree.

I have spent over a week trying to get in touch with the Lousiana Department of Public Safety because the State’s branding requirements are unclear. Even though located in Baton Rouge, the agency is unavailable due to the storm — I couldn’t even get a telephone connection. Here are some of the things I discovered from my own research, however. A vehicle is “salvaged” when it is declared a total loss by an insurance settlement.
La. R.S. 32:702 (2005) says, in part:

(10) The term “salvage title” shall mean a certificate used to evidence the declaration in an insurance settlement that a motor vehicle is a “total loss” motor vehicle as provided in this Chapter, to be prescribed and distributed by the office of motor vehicles, to an insurance company, its authorized agent, or the owner of a “total loss” motor vehicle.

(11) The term “total loss” means a motor vehicle which has sustained damages equivalent to seventy-five percent or more of the market value as determined by the most current National Automobile Dealers Association Handbook. However, a motor vehicle that sustains cosmetic damages caused by hail equivalent to seventy-five percent or more of its market value as a result of costs for repairs to items such as windshields, windows, and rear glass, exterior paint and paint materials, and body damage such as dents shall not be deemed a “total loss” and salvaged; however, such vehicles shall be issued a branded title indicating the vehicle has sustained hail damage.

The good news is that Louisiana law also requires disclosure of water damage to the buyer when selling a vehicle, but it does not appear to require the vehicle’s title be branded if it has sustained water damage, even if not declared a total loss:

La. R.S. 32:774.2 (2005)

§ 32:774.2. Sale of used water-damaged vehicles

A. No used motor vehicle dealer, nor any person or entity, shall sell, transfer, or convey any used motor vehicle to any person without notifying the buyer or receiver of the vehicle in writing of the extent of any water damage from flooding which occurred to the vehicle prior to the transaction.

B. If a sale, transfer, or conveyance of a used motor vehicle occurs in violation of Subsection A, the person receiving ownership and title to the vehicle who is not otherwise aware of the damage at the time of the transaction may bring an action to set aside the transaction within one year from the date of the transaction and receive all monies or other property given as consideration for the vehicle less a reasonable assessment for miles driven.

Problematically, there is no interpretation of this law to tell us whether it applies a strict liability or a knowledge standard. In other words, if you are a seller who has no idea the vehicle had water damage, are you liable for the transaction even though you acted honestly and in good faith? The law also doesn’t define “water damage”, so what amount of water and which part of the vehicle exposed constitutes “water damage”?

Mississippi, on the other hand, does not have a separate statutory requirement that water damage must be disclosed to buyers. The State does require insurance total losses to be retitled as a salvage vehicle. Miss. Code Ann. §63-21-33 (2005)

Mississippi law adds an interesting twist to these flood issues. MS is one of the states that titles mobile or manufacturered homes with a personal property certificate of title, not as real estate. Miss. Code Ann. §63-21-40 (2005). As a result, the State requires mobile home titles to be reissued as salvage certificates of title when a total loss claim is paid.

This is one of those times when having a Uniform Certificate of Title Act with uniform title branding laws would be extremely beneficial. Oh, and don’t forget. Whether the insurance company totals your vehicle or not, the auto maker will void your manufacturer’s warranty anyway. Good luck, too, getting your car fixed under any “extended warranty”. They typically have exclusions for changes in the vehicle as well.

Although a good number of very smart lawyers have commented on the recent Avery decision, I still am looking for a thorough analysis of the case rather than the knee-jerk reaction of “Oh, good” or “Damn”. Martin Grace, the RiskProf, and Evan Shaeffer at the Legal Underground probably have come the closest to something I can mull over. Overlawyered.com, which I expected to have a fulfilling discussion about the decision, just had a newsy blurb.

Yet, my biggest disappointment comes from Ted Frank in his post at Point of Law in which he remarks a bit on the decision but actually titled the entry “Good guys win Avery v. State Farm”. No one who has ever reviewed the evidence presented at trial could possibly say that the “good guys” won this case. Even the Illinois Supreme Court essentially said so-what-if-State-Farm-was-putting-crummy-inferior-parts-on-their -insureds-cars-and-”puffing”-about-how-great-the-parts-were. Come on, now, Ted. To the extent you are saying that the proper decision to reverse the trial court’s ruling certifying the class was made, I’m with you. But “good guys?” That’s really stretching it.

Yet, in all of this, I still want someone to tell me: What standard of review — for what portions of the decision — did the Avery court use? I have my own ideas about that, but I would be extremely interested in others’ opinions on the topic. I find it mind-boggling that a state supreme court sat on a decision this noteworthy for four years and couldn’t be bothered to set out the review standard it applied to various portions of the decision. I’m expecting great things from the legal scholars over at Point of Law. Consider this my request for analysis.

After a long spell of waiting, the Illinois Supreme Court finally decided the Avery v. State Farm Mutual Automobile Insurance Co. appeal of the $1 Billion verdict rendered against SF in 1999 for mandating the use of aftermarket parts in vehicle repairs for its insureds.

This is a lengthy decision, but here’s what it boils down to:

1) A national class should not have been certified for either the breach of contract or the consumer fraud claim.

2) No subclasses are entitled to recover as the jury instructions and verdict form were tainted.

3) The policies stating that “you agree” that State Farm can repair your car with either original equipment manufacture (OEM) or aftermarket parts mean that insureds have expressly authorized SF to repair your car with aftermarket parts, even if those parts are inferior to OEM and State Farms knows they are inferior.

4) Although never defined in the policy, the phrase like, kind, and quality is not ambiguous. It cannot not mean that aftermarket parts have to be of equivalent quality to OEM parts, because the betterment clause in the policy implies that there could be a situation in which a repair (presumably made with aftermarket parts) was better than a repair with OEM parts.

While I agree with the decision that a national class should not have been certified and, therefore, have no problem with points 1 and 2, the remainder of the majority’s opinion displays such repugnant reasoning that the decision is an embarrasment to the court. The dissent of Justice Freeman, with which Justice Kilbride concurs, is substantially better reasoned and is written in keeping with fossilized precedent.

After making the initial statement that the national class should not have been certified (for the contract breach issue — the majority later decides the consumer fraud claim certification was also inappropriate) because there was no single insurance policy at issue, the majority wonders if the verdict could be upheld for any subclass. It answers with a definitive NO on the basis that the jury instructions and verdict form stating that there was a single contract at issue was incorrect. (So far, so good.)

In what plainly is an attempt to avoid remanding the decision for further proceedings on the subclass issue (and I ascribe no motive here, whether good or bad), the majority delves into the nitty-gritty of the case, including reviewing evidence and interpreting policy language. (Now things get weird.)

One of the things I found notable in this decision is that the court oddly never identifies its standard of review — and it doesn’t appear to follow one.

In its discussions of the “you agree” policies, the court essentially says that each insured agrees that aftermarket parts can be put on the vehicle and extrapolates from that, that if those aftermarket parts are of inferior quality, you have agreed to let those parts be put on your car. The Illinois Supreme Court, however, fails to look at the standards for aftermarket parts required by its own State’s laws. The unfair claims handling section of the Illinois administrative code controls the types of replacement crash parts that insurers may specify for repair and requires that these parts be “of the same quality as the original part”.

Because contracts made in violation of the law cannot be upheld, it is inappropriate for the Avery court to suggest that insureds agreed to have their vehicles replaced with inferior parts (at least those insureds in Illinois). Moreover, other states’ laws expressly require the aftermarket parts to be of quality equal to or better than the original equipment manufactured part, e.g. California Code of Regulations, Title 10, Chapter 5, Section 2695.8 (g), an insurer that requires a policyholder to use non-OEM crash parts must warrant that the non-OEM crash parts are “at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit and performance.” Of course, applying the standards of other states’ laws is simply another argument demonstrating why a national class is not appropriate in this matter. Nonetheless, it underscores the ridiculousness of the Avery court’s assertion that insureds expressly agreed to have inferior parts used in their car repairs.

As Justice Freeman points out on this subject in the dissent:

The court avoids discussing the evidence presented by plaintiffs by holding that State Farm never promised any policyholders that repairs would utilize parts of equal quality to OEM parts. Thus, according to my colleagues, it does not matter whether State Farm was knowingly repairing its policyholders’ vehicles with inferior parts, because State Farm never promised to use noninferior parts. I suggest that the court has perhaps insufficiently considered the policy implications of overturning a billion dollar verdict on the basis that an insurer’s knowing usage of inferior parts is “good enough.”

(p. 72-73 of PDF opinion).

The dissent goes on to note:

The average person has no ability to bargain over the individual clauses of his or her auto insurance policy. The court ignores this fact, and seriously damages the credibility of its analysis by doing so. The notion that a policyholder has entered into a binding, factual admission simply by purchasing an auto insurance policy would merely be laughable if the court was not seriously suggesting it as a basis for overturning a billion dollar verdict produced by a two-month-long trial in which the evidence supports the conclusion that an insurer knowingly specified inferior crash parts for repairs of its policyholders’ vehicles.

The standards of those states expressly requiring replacement crash parts to be of equivelent quality to that of the OEM parts also turns the court’s analysis of the “Like, Kind, and Quality” policies on its head. Had the court considered the basis for this policy language, it would have reasoned that this language is there for the purpose of complying with the law of states requiring parts to be equivalent to OEM parts.

Shockingly, the Illinois Supreme Court turns to Florida, Texas, and Washington decisions to undergird its reasoning that the LKQ language merely means the parts have to be as good as the smashed parts they replace. These court decisions interprete their own insurance codes and state laws as to what standard an aftermarket part must meet. (This should have told the Illinois Supreme Court something.) But does the Illinois Supreme Court ever look to its own state laws to interpret this standard? No. Instead, the court goes to extreme lengths to develop a convoluted interpretation of what this policy language means.

Which brings us to an significant point. Why is this court interpreting policy language? Additionally, it is absolutely plain that the phrase “like, kind, and quality” is subject to at least two reasonable definitions. Therefore, the policy language must be deemed ambiguous, and, under the long-standing rules of insurance policy interpretation, must be construed against the insurer. The Illinois Supreme Court majority fails to apply this rule, which, at at best, destroys its credibility, and at worst, raises all of the ugly suggestions of bias, patronage, and conspiracy — all of which the majority hotly denies.

Lastly, the court appears to ignore significant evidence adduced at trial as to what State Farm understood and believed it owed to its insureds and the insurers’ own company philosophies. The differences between the evidence discussed by the Illinois Supreme Court and the appellate court are so stark that the courts’ opinions appear to address two entirely different cases.

This decision is deeply troubling. If the majority had stuck to overturning the certification of the national class and overturning the verdict because the jury instructions and verdict form were erroneous, this decision would be sound. In its zeal, however, the majority did not content itself with a decision based on sound judicial reasoning. Instead, it has set out on a frolic from which it may never be able to return.
Avery v. State Farm Mutual Automobile Insurance Co.

I am delighted to announce that my AutoMuse blog has been reviewed on the Small Business Trends PowerBlog Review. Small Business Trends: PowerBlog Review: AutoMuse

I am also delighted that AutoMuse has been chosen by Forbes for its “Best of the Web” awards. Thanks for the recognition!

Randy Cohen, writing an ethics column (RR) for the New York Times Magazine, but which I picked up from the Houston Chronicle, finds no problem understanding the concept of decreased car value after even a minor accident. Cohen tells a college student who paid a neighbor $250 after denting the neighbor’s car that the obligation to pay is for the decreased value caused due to the dent, despite the fact that the car was totaled shortly thereafter, and the repair may never have been made.

I particularly like this part of Cohen’s answer:

A: Your ethical obligation is to make up for the damage you did; what
subsequently happens to the car is not relevant. Even if you know that
your neighbor will be murdered after lunch, you may not punch her in
the nose at breakfast. Alas, your being a hard-pressed student does not
relieve you of this obligation.

HoustonChronicle.com - Cohen: Truth telling to children better than buried treasure

Ford Motor Co. has taken a definitive stance on the issue of “clipping” — you know, that nifty procedure that welds two different vehicles together like Frankstein’s body, just add neck bolts. Well, Ford recently said, “That’s an absolute no-no.” Guess what car owners? Ford flatly tells you that letting your car be “fixed” in this manner voids the vehicle’s warranty and any Ford extended service plan.

Ford also advises repairers to get on the ball and become familiar with any applicable state laws or regulations which might require a clipped vehicle to be retitled as a “rebuilt” or “salvage” car.

For consumers’ information, the other vehicle manufacturers also void your warranty if your vehicle is clipped. Ford has just had the courtesy to tell you it will happen before your vehicle is repaired and has taken the step to put insurers and repairers on notice of its concerns with the safety of the technique. This notice is also a blatant heads-up that Ford refuses to accept liability for any of its products “repaired” in this manner.