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.
On the Net:
Bureau of Automotive Repair: http://www.autorepair.ca.gov