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March 01, 2005
NCOIL's Aftermarket Parts Model Act is Sub-Standard
NCOIL, the National Conference of Insurance Legislators, is to consider a Certified Aftermarket Crash Parts Model Act in its Spring Session at Hilton Head, S.C. this week. As we all still await the Illinois Supreme Court's ruling on Avery v. State Farm Mutual Automobile Insurance Co., 321 Ill. App. 3d 269, 746 N.E.2d 1242, 254 Ill. Dec. 194 (2001), appeal allowed, 201 Ill. 2d 560, 786 N.E.2d 180, 271 Ill. Dec. 922 (2002), including a model aftermarket parts act in NCOIL’s agenda raises a number of questions.
First, why are insurance legislators even looking at the passage of a model act dealing with a commercial product that is not an insurance product? We are talking about car parts here, folks. Let’s say that again together. CAR PARTS. Physical products with warranties and product liability. What in the world are insurance legislators doing tromping on the jurisdiction of the FTC and the states' Attorneys General?
Car parts have nothing to do with the “business of insurance.” They aren’t about rate setting, they aren’t about collecting premiums. Yet, here is NCOIL about to consider whether it should sanction a model aftermarket parts act that would endorse certification by “third party organizations”, like CAPA (Certified Aftermarket Parts Association) and which would effectively create a presumption of quality for the aftermarket parts equal to that of OEMs. It's a wonder that the NAAG hasn’t gotten up in arms about this issue. Go to NAAG's consumer protection page and you will find a heading for Automotive and Tire Safety. The stated purpose of NCOIL's model act is to protect consumers from inferior aftermarket crash parts used to repair vehicles. Regulating body shops and preventing them from using inferior parts in their repairs is squarely in the AGs' corner.
Certainly one can argue that endorsing the use of aftermarket parts is a subject that is tangentially connected to insurance in that their use affects the cost of claims and, therefore, premiums charged. OK. One could say the same thing about every product we use because they have a potential impact on health and life insurance and even about the roads on which we drive. Take roads, for example. Cars have accidents on roads and, because every state requires drivers to carry auto insurance, insurers have a tangential interest in how roads are constructed, the materials used, and which designs should be considered. But NCOIL isn’t considering a model act to endorse the certification and use of particular compositions of asphalt, now is it?
Second, NCOIL’s aftermarket parts act disallows any manufacturer of OEM or aftermarket parts from being a “third party certifier” (Section 3, definition 4) It does not, however, exclude insurance companies from being a third party certifier, nor does it prohibit an insurer from setting up, owning, or controlling a third party certifier. As insurers are the exclusive advocates of using aftermarket parts (aside from aftermarket manufacturers), just how independent do you think these third party certifiers are likely to be?
Part of the insidious nature of the model act, however, is the fact that it does not impose any liability on the third party certifier if it certifies sub-standard parts. Thus, if the certifier does a lousy job, we could all end up with inferior, and even dangerous, replacement crash parts that are presumed to be of certain quality. Worse, if the third party certifier has an agenda to promote as many aftermarket parts as possible, we could receive the same questionable products available today dressed up with a stamp of approval.
Additionally, the act does not impose liability on insurers for mandating the use of aftermarket parts in the event they fail. The sole provision which had imposed, albeit, secondary liability on the part of the insurer has been removed from the current version of the model act. In prior drafts, the aftermarket parts manufacturer bore the responsibility if the part failed, but secondary liability could be imposed on insurers if the insurer gave the insured no option but to use replacement crash parts. A prior version of the model act stated:
5. e. “Certified aftermarket crash part” - An aftermarket crash part for which a certification has been issued by an independent third-party certifier as defined in Section 3(4d) of this Act. All aftermarket crash parts certified shall be warranted by the manufacturer, distributor and/or the insurer as being equal to or exceeding the parts placed on the vehicle during initial assembly in terms of fit, finish, quality and performance. Primary liability shall rest with the manufacturer for any part that was the proximate cause of an injury. Secondary liability shall rest with the insurer in such cases if, and only if, the insurer mandated in its policy no option other than the use of non-OEM crash parts. (Bold in original.)
Any question of imposing liability on the part of the insurer for requiring a consumer to use (what turns out to be) a defective part has been sanitized from the current version of NCOIL's model act.
Third, collision repairers will tell you that they don’t like to use aftermarket parts because they do not fit properly, are poor quality parts, and they have concerns about the potential safety issues with them. BodyShop Business, a trade publication for the collision repair industry, has published its 2004 statistics on repairers’ use of aftermarket parts. 87% of the body shops surveyed said they use aftermarket parts. 62% of respondents said they use these parts because they are pressured by insurers to do so. (Participants were permitted to select more than one reason when responding.) Only 6% said they use the parts becaues they like them. Of the repairers refusing to use these replacement crash parts, 87% is due to poor fit, while 78% is due to poor quality of the parts.
If any organization should be certifying aftermarket parts, collision repairers and their organizations should be the exclusive entities capable of becoming “third party certifiers”. After all, they work with parts and cars every day in a real world environment, not in some carefully controlled, crash test world. They know how well the parts hold up, whether they fit, and whether they are safe enough to be on any family’s vehicle. Imposing the use of aftermarket parts on the repairers because some made-up entity ostensibly “certified” them is about as sensible as letting fourth graders build the next space shuttle.
Fourth, although there is no liability for a third party certifier, and, therefore, no incentive to be accurate and careful in its certification, the act creates the presumption of quality equivalent to an OEM part.
Section 4. Use of Certified Aftermarket Crash Parts
All non-car company aftermarket crash parts, as defined in Section 3(1), which are used to repair a motor vehicle and which are certified, shall be presumed to be suitable replacement parts.
Hold on a minute. This provision creates the presumption of suitability and implies they have achieved a certain level of quality. No other manufacturer of any product gets that. I'm certain Ford, GM, Mr. Coffee, Dell, Mars and every other product maker would love to have legislation declaring their parts to be of certain presumed quality. Does this mean the mere certification of a part that turns out to suffer from product defects is an affirmative defense to any product liability action? Does this imply NHTSA can't initiate a recall? Let's at least hope that this presumption is rebuttable.
Fifth, the model act deprives finance and lease companies the right to demand their own vehicles or their security interests be repaired with OEM parts.
Section 6. Leased and Financed Vehicles
No individual, company or agent shall impose any penalty upon an individual leasing or financing a motor vehicle that repairs said vehicle using certified aftermarket crash parts.
(I see potential issues with the freedom to contract and secured transactions with this provision.)
Sixth, and probably the most important issue, the act is completely devoid of any enforcement mechanism. It does not provide for the decertification of any previously certified third party entity, nor does it have any penalties for the certifier’s failure to comply with the requirements of the certification process. There is no consumer protection recourse and the act fails to suggest that any aftermarket parts act be integrated into existing consumer fraud/protection laws.
In sum, despite its stated purpose to protect consumers from inferior aftermarket crash parts used to repair vehicles NCOIL’s model aftermarket parts act does more to endanger consumers and expose them to inferior parts than the situation currently. This model act is not good for consumers and is not good for the collision repairers who serve them. It is only good for insurers, as it gives them an easy mechanism for mandating the use of these parts, creates the presumption of quality, and insulates them from all liability.
Additionally, NCOIL should not even be considering what is, in essence, a product matter, and it should not be interfering with issues that are governed by other state agencies. NAAG should be considering this issue, not NCOIL.
Finally, the marketplace has already determined that aftermarket crash parts have limited viability in a free market environment. The repairers don’t want to use them because they are sub-standard. Consumers don’t want them because of quality issues. If these parts are as good as insurers contend, let the marketplace determine whether they should be used.
Posted by E L Eversman at March 1, 2005 08:40 AM
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Comments
"First, why are insurance legislators even looking at the passage of a model act dealing with a commercial product that is not an insurance product?"
Though I wouldn't quibble with the view that this is likely a waste of NCOIL's time, I'd note that legislators -- unlike regulators -- are not strictly bound to any one particular area of law. NCOIL is comprised of elected officials from across the country who usually happen to serve on insurance-related committees in their particular Senate, Assembly, House of Delegates or House of Representatives. But the organization's title notwithstanding, they are not, strictly speaking, "insurance legislators." They are legislators who happen to be interested in insurance. If they devoted their legislative careers to no other concerns save insurance, they probably wouldn't be long for the statehouse.
I've attended and covered both NAIC and NCOIL conventions, and (I think understandably) the latter tend to delve into matters much more loosely or tangentially related to insurance. At their meetings in Duck Key, Fla. last November, for instance, one of the hottest debates was on the topic of television advertising of prescription drugs. Not only is that not in any significant sense an "insurance" issue, given that such matters are regulated by the FDA and FCC, it's not in any sense an issue for state-level politicians to concern themselves with!
Posted by: Ray Lehmann at March 2, 2005 04:01 PM
I agree with you. Yes, NCOIL, unlike NAIC, is comprised of people who are legislators first and interested in or assigned to the insurance sector second. However, I believe that NCOIL's endorsement of a model act that is outside of regulating the "business of insurance" is dangerous and should not be considered.
Insurers no longer simply insure risk and collect premiums, but they falsely assume that any activity in which they engage is exempted from federal oversight via the McCarran-Ferguson Act. Encouraging NCOIL to endorse a model act which deals with a topic not in any way the "business of insurance", and by using NCOIL to enroach on areas already governed by consumer protection laws and enforced by the attorney general, insurers further blur the distinctions between what is the "business of insurance" and what is not.
I think it is great that important issues -- even those only tangentially related to insurance -- are debated via NCOIL. The debate part is something I encourage, and if NCOIL stuck to debating the issues about aftermarket parts, I would be satisfied. My problem is with the fact that NCOIL has gone so far as to draft a model act and is considering endorsing it. Model acts are designed to be adopted by states "as is" or with as little tweaking as possible and, therefore, are typically more comprehensive in their input and analysis. Any endorsement of this purported model act by NCOIL and its corresponding implication that this act should just be adopted "as is" is frightening.
So, in short, it's the creation of the model act and its "endorsement" by NCOIL that I find disturbing. Otherwise, from my perspective, NCOIL can debate any issue it finds interesting until the cows come home. Moo.
Posted by: E L Eversman at March 2, 2005 05:53 PM
I appreciate your information about diminished value claims. I didn't realize as a third party I was entitled to a claim until my insurance company sent me the info after my third (not my fault any time) accident in the same car. I want to pursue it with the trucking company that hit the car in January, but they're claiming that because I signed the check (that had some release language on the back)that I'm not entitled to file a claim. I'm in Georgia and they're in Iowa somewhere. Their agent here is giving me such grief. Any recourse?
Posted by: carmen at June 22, 2005 04:22 PM