Collision repair shops are claiming a victory in a recent court dispute over Rhode Island’s labor rate survey law. In August, a Rhode Island Superior Court judge ruled that state law requires every insurance carrier in the state to conduct a labor rate survey and to use that data as the sole factor in determining rates. That ruling has already withstood one challenge from the Property Casualty Insurers Association of America (PCI). “This is a big win for our industry,” says John Petrarca, president of the Auto Body Association of Rhode Island (ABARI) and owner of Providence Auto Body. “I think our labor rate law can serve as a model for other states, and there’s no question in my mind that we’re going to win on this issue.” In Auto Body Association of Rhode Island vs. State of Rhode Island Department of Business Regulation (DBR), Superior Court judge Netti C. Vogel ruled that the statute applies to “every insurance carrier authorized to sell motor vehicle liability insurance in Rhode Island,” and that the labor rate survey was to be used as “the sole determinant of the prevailing auto body labor rate.” According to Petrarca, insurance providers had been using labor rates from neighboring states, CCC and Mitchell reports, subrogation and other methods to determine the prevailing rate. ABARI filed a petition with DBR asking for a declaration that the labor rate surveys would be the sole determinant of rates in Rhode Island, which the department rejected, claiming that the language of the bill was ambiguous and open to interpretation. ABARI appealed that decision to the Superior Court, and PCI made a filing in the case asking the court to affirm DBR’s decision. “We are very disappointed with the court’s ruling and are considering our appeal options,” says Frank O’Brien, vice president and regional manager for PCI, after the initial decision. “The ruling has the potential to mandate a badly flawed scheme for calculating the prevailing rate that could result in inflated rates and higher repair costs. ABARI wants to circumvent the role of competition in setting prices and force insurers to pay whatever amount is reported to them in the Auto Body Labor Rate Survey. We want to make sound decisions about repair claims and take into account the many factors that should be included in determining a fair labor rate. Efforts to make sure repair costs are reasonable benefit all consumers because they help contain the cost of auto insurance.” PCI filed a motion for clarification after the decision, asking the judge to alter the language of the ruling. “They wanted to change the wording in the ruling so that it reflected the original statute, but I argued that that would be improper, because that was the whole question presented to the court in the first place,” says Jina Petrarca-Karampetsos, the attorney for ABARI. “The judge said in no uncertain terms that the statute was clear and that her ruling was clear. She really understands the reasoning behind this.” The labor rate survey statute was instituted in 2006, and requires that any insurance company with more than 1 percent of the market to use a standardized form to survey body shop labor rates. Facilities with direct repair program agreements with insurance companies are excluded from participating in the surveys. Republican Gov. Donald Carcieri vetoed the bill, but the predominantly Democratic legislature overrode the veto. Prior to the survey law, labor rates in Rhode Island were approximately $38 per hour, having risen just $6 in 20 years. After the law went into effect, the average rates went up to $45 per hour for body work and $60 for mechanical (rates varied depending on geography and insurer). “Forty-five dollars an hour is not a lot of money, but it’s still $7 more than where we were,” Petrarca says. Insurance companies are required to send out a survey form (created by the DBR) each year to gather labor rate data. “No one tells the insurance companies how to analyze or calculate the data,” Petrarca-Karampetsos says. “They calculate their own rate. There are companies here who are complying, and they pay significantly more than some of the larger companies that were using these other methods to get around the DRP exclusion. Even State Farm, which doesn’t even write policies in Rhode Island, conducts a voluntary survey online, and they pay more than a lot of their competitors.” Last year, DBR issued a bulletin in response to insurance companies asking for “detailed information and data that exceeds the statutory mandate” under the labor rate survey law, including documentation on how the shops set their rates. The department acknowledged that the type of information that the insurance companies were looking for would be useful in rate setting, but declared that such information gathering was not provided for in the existing survey process. PCI still has the option to appeal the most recent ruling to the Rhode Island Supreme Court, but Petrarca is confident that the judge’s decision will stand. “I believe we are going to prevail,” Petrarca said. “There is no ambiguity in that statute.” |
