Wednesday, October 30, 2002
By LOUISE CHU
Associated Press Writer
SACRAMENTO -- Insurance companies, currently fighting lawsuits that accuse them
of defrauding consumers with shoddy auto parts, were challenged by the Senate
Insurance Committee Monday to comply with California's own auto repair fraud
investigation.
The state Bureau of Automotive Repair claims a number of insurance companies,
including Allstate Insurance Co., Farmers Group Inc. and State Farm Insurance
Cos., have failed to cooperate with its request for documents related to cases
in which auto body repair shops have been found to engage in alleged insurance
fraud.
Insurance Commissioner Harry Low reported that more than 80 percent of insurance
companies have failed to comply with the requests. Many of those companies, led
by State Farm, contend the agency doesn't have the authority to request those
documents.
"It is hard for me to understand why an insurer would not want to help the state
stop insurance fraud," said Sen. Jackie Speier, D-Daly City, the committee's
chairwoman.
BAR, which operates under the state Department of Consumer Affairs, registers
and regulates about 34,000 California auto repair shops and also licenses smog
check, lamp and brake inspection stations.
Its ongoing investigation is a product of its anti-fraud pilot program,
established in January 2001, which provides California consumers free
inspections of recent auto body repair work to determine if they were defrauded.
The investigation was further fueled last month when a California Highway Patrol
sting operation resulted in the arrests of 35 people for preparing false
estimates for insurance claims. Of the 62 auto repair shops targeted by the
sting operation, 25 were found to be engaged in fraud activity.
BAR also reported in August that 42 percent of the vehicles inspected since the
inception of the program were the subject of some type of fraud. The most common
problem was billing for parts that were not actually replaced, according to the
findings.
In 38 percent of those cases, the agency reported, the fraud involved a repair
shop recommended by an insurance company. In these "direct repair" programs,
insurance companies contract auto body repair shops to provide services at
discounted rates in exchange for the extra business.
"I want to know if this direct repair relationship has anything to do with the
lack of insurer cooperation," said Speier, who wrote the bill creating the pilot
program.
Representatives from Allstate and Farmers Group said their companies were
committed to cooperating with the agency's fraud investigation.
"It is my understanding that we have been cooperating for years, and we continue
to cooperate," said Delia Chilgren, an attorney for Allstate. She added that
Allstate even provided the cars used in CHP's sting operation.
But in a nine-page letter to BAR last Friday, State Farm maintained its right to
not provide the documents because they were not directly related to the pilot
program. State Farm's attorney Garrett Williams said Monday the company would
continue to withhold the documents unless legislative action was taken to expand
BAR's authority.
"If you go to court to determine what is clearly already the law, ... I think
that would be a very bad PR move on your part," Speier said to Williams.
State Farm is also currently appealing a 1999 ruling in Illinois, that ordered
them to pay $1.2 billion for using substandard auto parts. It is also involved
in another class-action lawsuit, filed later that year, which accused them and
seven other insurers, including Allstate, of conspiring to use inferior auto
parts. That case is still pending.
Earlier this year, the Legislature defeated another bill by Speier to block
insurance companies from taking over auto repair shops in California.
Allowing insurance companies to own body shops, the bill's supporters said,
would hurt consumers by leaving them without an advocate for quality repairs.
Opponents, however, said such a ban would do little to curb fraud.
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On the Net:
Bureau of Automotive Repair: http://www.autorepair.ca.gov