Oral Argument Preview: Auto Repair Estimates: Using the Consumer Sales Practices Act Improperly to Regulate Insurers or Properly to Protect Consumers? Jerry Dillon, et al. v. Farmers Insurance of Columbus, Inc.

Update: On December 29, 2015, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read an analysis of the oral argument here.

On February 24, 2015, the Supreme Court of Ohio will hear oral argument in the case of Jerry Dillon, et al. v. Farmers Insurance of Columbus, Inc., 2014-0451. At issue in this case is whether R.C. 1345.81 of the Consumer Sales Practices Act (“CSPA”) may apply to insurers of motor vehicles.

Case Background

Jerry and Nancy Dillon’s Mercury Milan collided with a deer. Jerry Dillon had the car towed to a repair shop and filed a claim with Farmers Insurance of Columbus. Farmers assigned a claims representative to inspect the vehicle for damages and prepare a written estimate. The estimate called for the use of several aftermarket or Non-Original Equipment Manufactured (“non-OEM”) parts. Aftermarket, or non-OEM parts, are spare parts made by companies other than the car’s original manufacturer.  Such parts are made without the permission of the original manufacturer and the standard of quality among aftermarket parts varies greatly.

Jerry Dillon was aware that his policy allowed for the use of Non-OEM parts, but informed the claims representative that he did not want these parts used to repair his vehicle. The claims representative did not discuss which parts were to be used in the repair before the estimate was handed directly to the personnel at the repair shop, and the claims representative did not get the Dillons’ signature on the proposed repair estimate.

After discovering that the estimate called for the use of non-OEM parts, Jerry Dillon directed the repair personnel to use only OEM parts. Farmers refused to pay for the difference between the original estimate and repairs with OEM parts.

Jerry and Nancy Dillon filed a lawsuit against Farmers alleging the insurance company violated R.C. 1345.81, a section of the Consumer Sales Practices Act which requires insurers to obtain written consent from a policyholder for the use of non-OEM parts in a written estimate. The trial court awarded treble damages and legal fees and expenses totaling $30,613.66, which included $1,521.07 for actual damages and an additional $4,563.21 treble damages.

On appeal, Farmers argued that R.C. 1345.81 cannot apply to insurers.

In a unanimous decision, the Fifth District Court of Appeals upheld the trial court’s decision, and confirmed the award of treble damages and legal fees and expenses. But the court overturned the award of $1,521.07 for actual damages, finding the Dillons could not be awarded both treble damages and actual damages. The court also determined that the provisions of R.C. 1345.81, which specifically references insurers, could not be reconciled with R.C. 1345.01 and 1345.02 which generally exempts those engaged in the business of insurance from CSPA provisions, and under those circumstances the specific (and more recent) provision prevails.

Key Statutes and Precedent

R.C. 1345.01 (C) (A supplier is defined as a “seller, lessor, assignor, franchisor, or other person engaged in the business of effecting or soliciting consumer transactions, whether or not the person deals directly with the consumer.”)

R.C. 1345.02 (No supplier shall commit an unfair or deceptive act or practice in connection with a consumer transaction. Such an unfair or deceptive act or practice by a supplier violates this section…)

R.C. 1345.81 (B) (Requires insurers to disclose the use of non-OEM parts used to repair a motor vehicle. If the vehicle owner requests a written estimate, the use of non-OEM parts must be included in the estimate and the owner must sign the estimate. If the owner requests an oral estimate, the insurer must notify the owner about the use of non-OEM parts at the time the estimate is given and must include such notice in the final invoice for the repair.)

Anderson v. Barclay’s Capital Real Estate, Inc., 2013-Ohio-1933.  (Mortgage servicing is not covered under the Ohio Consumer Sales Practice Act. Servicing of a borrower’s residential mortgage loan is not a “consumer transaction” as defined in R.C. 1345.01(A). An entity that services a residential mortgage loan is not a “supplier” as defined in R.C. 1345.01(C).)

Johnson v. Lincoln Natl. Life Ins. Co., 69 Ohio App.3d 249 (1990) (The OCSPA has no application to controversies over insurance policies.)

Miller v. Geico Indemn. Co., 2008-Ohio-791. (2nd Dist.)(Insurance actions are not within the scope of the CSPA.)

Cicero v. Am. Satellite, Inc. 2011-Ohio-4918. (10th dist.) (A plaintiff who could not have been deceived by a defendant’s conduct cannot prevail on a CSPA claim.)

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982) (Establishes a three prong test for determining whether an activity is the business of insurance. First, whether the practice has the effect of transferring or spreading a policyholder’s risk. Second, whether the practice is an integral part of the policy relationship between the insurer and the insured. Third, whether the practice is limited to entities within the insurance industry.)

Bigelow v. Am. Family Ins. 2014-Ohio-2945. (5th Dist.)(Defendant cannot avoid the penalty of failing to comply with R.C. 1345.81 by simply issuing a written estimate before consumer had the opportunity to request it.)

Farmers’ Argument

Farmers argues that Title 39 of the Revised Code is intended to regulate the insurance industry, and that individuals cannot bring a claim against their insurer under the CSPA. It contends that R.C. 1345.81 is intended to apply to the auto body shop performing the repairs, not to insurers.

To support this claim, Farmers notes that, under R.C. 1345.02, CSPA claims require a “supplier” and a “consumer transaction”, and argues that both of these requirements are absent here. According to Farmers, the Court of Appeals erred in ignoring this requirement.

Farmers further contends that the Court of Appeals’ decision produces unreasonable results and radically increases the scope of the CSPA. In addition, it argues that the fee award upheld by the court was excessive. Further, it argues that Dillon was provided with both a written and oral statement by Farmers, and was never deceived, confused or misled.

Finally, Farmers contends that the lower courts erred in their interpretation of the notice requirement in R.C. 1345.81. It argues that the protections under that section are only available if the individual chooses to receive a specific estimate form. Since the Dillons did not make any elections as to what type of estimate they wanted to receive, Farmers believes that R.C. 1345.81 is not implicated.

Dillons’ Argument

The Dillons argue that, while insurers are generally exempt from the CSPA, R.C. 1345.81 expressly applies to insurers who write motor vehicle repair estimates calling for aftermarket parts. They characterizes this case as a consumer safety issue, and argue that insurance companies enter the consumer realm when they choose to issue estimates determining which parts go into the repair of an automobile.

The Dillons argue that the Ohio Legislature intended for the act of issuing repair estimates to be considered a consumer transaction. They note that the Ohio Legislature enacted R.C. 1345.81 over concerns about the quality and safety of non-OEM parts, and that the legislation was meant to ensure that Ohio citizens would be informed about the use of such parts in the repair of their vehicles. They argue that it is unreasonable for Farmers to claim it has no responsibility to comply with the statute.

Next, citing the three part test in Union Labor Life Ins. Co. v. Pireno, the Dillons argue that Farmers was acting outside of the business of insurance when it issued the repair estimate, arguing that not all actions performed by insurance companies are a part of the “core business” of insurance. Most notably, the Dillons argues that the practice of issuing vehicle repair estimates is not limited to entities within the insurance industry.

R.C. 1345.01(C) defines a supplier as a “person engaged in the business of effecting or soliciting consumer transactions, whether or not the person deals directly with the consumer.” The Dillons contend that Farmers acted as a supplier under the CSPA by writing a collision repair estimate proposing how a vehicle was to be repaired, and determining what parts were to be used.

The Dillons further argue that, even if Farmers is found not to be engaged in a consumer transaction, R.C. 1345.81 should still apply, as it specifically addresses insurers. They argue that the statute was enacted partly over concerns over the insurance industry’s heavy reliance on non-OEM parts for collision repairs, and note that the Ohio Legislature plainly intended it to apply to insurers.

Finally, the Dillons respond to Farmers’ second proposed proposition of law, arguing that Farmers is attempting to argue for the first time at the Supreme Court level that they were not deceived or misled by omissions by Farmers.  In any case, the Dillons argue that Farmers’ issuance of the written repair statement without consulting them and without obtaining their signatures is a per se unfair or deceptive act pursuant to R.C. 1345.81

 Farmers Proposed Proposition of Law No. 1

An insurer does not engage in a “consumer transaction” for the purposes of any provision of the Ohio Consumer Sales Practices Act (R.C. §1345.01 et seq.), when it adjusts its insured’s claim for motor vehicle damage, and issues a repair estimate.

Farmers Proposed Proposition of Law No. 2

An insurer’s issuance of a repair estimate for the use of OEM and non-OEM parts is not an “unfair or deceptive act or practice” pursuant to any provision of the Ohio Consumer Sales Practices Act (R.C. §1345.01 et seq.), where the estimate complies with the express terms of the applicable insurance policy; the insurer orally notifies its insured of the content of the estimate; and the insured chooses the repair facility.

Amicus Briefs in Support of the Dillons

The Alliance of Automobile Manufacturers, the Automotive Education and Policy Institute, the Choice Auto Body Repair Association, and the Ohio Association for Justice all filed amicus briefs in support of the Dillons.

The Ohio Association for Justice argues that R.C. 1345.81 explicitly encompasses insurance companies out of safety concerns, and is, at its core, a disclosure statute. OAJ outlined the legislative process behind R.C. 1345.81, noting that testimony offered during the legislative process indicates that insurers were playing a central role in the proliferation of non-OEM parts, which automotive manufacturers believed to be inferior and unsafe.

The Alliance of Automobile Manufactures also underlined the safety concern behind R.C. 1345.81, noting that the statute allows consumer to be more aware of when their vehicles are repaired using non-OEM parts. The Alliance argues that the conflict that the Court of Appeals identified between R.C. 1345.81 and R.C. 1345.01 should be resolved in favor of R.C. 1345.81, the more specific and later-adopted statute.

Submitting a single amicus brief, the Automotive Education and Policy Institute and the Choice Auto Body Repair Association voice their own concern about non-OEM parts and argue that Farmers is asking the court to “exercise a line-item veto” by eliminating a provision that applies directly to insurance companies. It argues that R.C. 1345.81’s disclosure requirement is a workable rule that does not conflict with the CSPA’s general exemption for insurance companies. Instead, it is a stand-alone requirement that targets the role that insurers play in vehicle repair transactions. Finally, the two organizations seek to downplay OACTA’s dire warning, noting that R.C. 1345.81 had been around for 24 years, implying that insurance companies have generally complied with the rule.

Amicus Brief in Support of Farmers

The Ohio Association of Civil Trial Attorneys argues R.C. 1345.81 has been misapplied by the lower courts. It further argues that that affirming the decision of the Court of Appeals would set a precedent that could destabilize the insurance industry, in a manner equivalent to the days of Scott-Pontzer. Holding that the CSPA applies to insurance claims, OACTA argues, would dramatically increase an insurer’s exposure to automobile accident claims. In addition, it would result in higher insurance premiums and make it too costly for some insurance companies to do business in Ohio.

OACTA argues that Farmers was not engaging in a “consumer transaction,” nor did it engage in any deceptive acts under the CSPA. Farmers was merely adjusting an insurance claim according to the terms of the insurance contract with the Dillons, a process governed by Title 39 of the Revised Code.

Further, OACTA contends that the CSPA was not intended to handle automobile property damage claims, noting that attorney’s fees in CSPA cases routinely dwarf the amount of actual damages to the consumer. OACTA argues that awards like the one in this case will create uncertainty that could damage the insurance industry.

Student Contributor: Michael Elliott

 

 

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