Prohibits insurers from limiting payment on claims based on pricing caps and from recommending a particular repair facility, and requires notice to insureds

Summary of specific provisions

Amends Section 2610 of the Insurance Law to prohibit insurers from establishing price caps for labor, parts, paint or repair materials; requires that all elements of a claim shall be negotiated with the insured or his/her designated representative by a duly licensed appraiser; requires insurers to restore a damaged vehicle to preaccident condition; requires insurers to maintain in its files a statement signed by the claimant showing that the claimant is aware of the provisions of this section of law.

Justification

An economic impact report prepared in 2006 by Frederic B. Jennings, Jr., Ph.D. for the NYS Auto Collision Technicians Association, Inc., provides evidence that automobile insurance companies in New York State are arti- ficially suppressing payment for labor rates paid to auto body repair shops, and are thereby jeopardizing the safety of drivers on New York roads. The report argues that suppression of labor rates has reduced the quality of repairs completed in many auto body repair shops, and there- fore has jeopardized driver safety.

In an effort to reduce costs, automobile insurance companies enter into "preferred" shop agreements with auto body repair shops, such that the preferred shop provides a discount to individuals insured by that insur- ance company. Automobile insurance companies may then refer claimants to those shops when asked for a referral. Under current law, insurance companies are permitted to pay the lowest price estimate on repairs, as long as the repairs restore the vehicle to pre-accident condition.

The President of the Auto Collision Technicians Association asserts that member shops regularly see customers in need of re-repairs for a poor job done by another body shop, generally the "preferred shop" recom- mended by the insurance company. In most instances, the insurance compa- ny must pay for the cost of the re-repair after significant hassle and legal negotiation on the part of the consumer. The Association esti- mates that this need for regular re-repairs to fix poor initial repair jobs actually has the effect of increasing auto insurance premiums, despite the claims of auto insurance companies that suppression of labor rates reduces monthly premiums to customers.

Preferred shops establish relationships with the insurers by agreeing to complete repair work within the price guidelines set by the insurance companies. This practice of establishing rigid price guidelines or caps goes beyond the legitimate right of the insurer to negotiate the price of repair. It has the effect of limiting consumer choices by dividing repair shops into two groups: the cut-rate shops preferred by the insurers, and independent shops which can be effectively black-listed by insurance company policies and procedures.

The proposed legislation would require insurers to inform customers of their right to select a repair shop and to make decisions regarding the type of repair done to their vehicle. The bill would further strengthen the power of the consumer by prohibiting the use of arbitrary price caps set by insurers to limit the cost of repair. While the insurer may negotiate with the repair shop as to the cost of repair, they may not refuse to pay claims where the repair shop's estimate exceeds the insur- er's guidelines.

Prior legislative history

2005-2006: A.7650. 2007-2008: A.392

Fiscal implications

None.

Effective date

January 1, 2010.