Insurer Did Not Violate Connecticut Unfair Trade Practices Act by Requiring Auto Body Shops to Use Agreed-Upon Labor Rates

A unanimous Connecticut Supreme Court has ruled that an automobile insurance company did not violate the Connecticut Unfair Trade Practices Act (“CUTPA”) by requiring its appraisers to use low labor rates when estimating the cost of auto body repairs for the company’s insureds.

The Case

Artie’s Auto Body, Inc., A & R Body Specialty, Skrip’s Auto Body, and the Auto Body Association of Connecticut brought a class action against The Hartford Fire Insurance Company on behalf of more than 1,000 independent auto body repair shops in Connecticut. The auto body shops principally claimed that the insurer had violated the CUTPA by requiring its staff motor vehicle physical damage appraisers, all of whom had to be licensed under Connecticut law, to use hourly labor rates agreed on by the insurer and the auto body shops, instead of rates that the auto body shops alleged more accurately reflected the actual value of those services, when appraising auto body damage sustained by the defendant’s insureds.

According to the auto body shops, the insurer’s conduct constituted an unfair trade practice because it offended the Connecticut requirement that appraisers “approach the appraisal of damaged property without prejudice against, or favoritism toward, any party involved in order to make fair and impartial appraisals….”

The evidence presented at trial established that the appraisers, when negotiating with independent auto body repair shops on behalf of the insurer, used the hourly labor rate that the insurer paid to shops that were part of the insurer’s direct repair program (“DRP”). Under this program, in return for a steady stream of customer referrals, auto body repair shops contractually agreed to perform repairs at an hourly labor rate set by the insurer.

The evidence demonstrated that the DRP hourly labor rate was significantly lower than the hourly labor rates that were posted in the auto body shops. The evidence also demonstrated that the DRP hourly labor rate was equal to the rates that other insurance companies in Connecticut paid for auto body repair services.

It also became clear at trial that almost all of the auto body repair services purchased in Connecticut were purchased by insurance companies. The auto body shops conceded that because virtually all of their business was insurance-related, it was exceedingly rare for them to be paid their posted hourly labor rates. But they argued that their posted rates reflected the true value of their labor and what they would receive if the insurer and other insurance companies were not, by virtue of their market power, suppressing the hourly labor rate.

The auto body shops also acknowledged that they agreed to work for the DRP rate because if they did not, their competitors would, and they could not afford to lose the business.

The jury found in favor of the auto body shops and awarded them $14,765,556.27 in compensatory damages.

The trial court awarded the auto body shops $20,000,000 in punitive damages and then rendered judgment for the auto body shops in the total amount of $34,765,556.27.

The insurer appealed to the Connecticut Supreme Court.

The Connecticut Supreme Court’s Decision

The Connecticut Supreme Court reversed the trial court’s judgment, finding that neither the insurer’s conduct nor the conduct of its appraisers violated the CUPTA.

In its decision, the court declared that insurance companies in Connecticut “have the right to negotiate the hourly labor rate that they are willing to pay for auto body repairs and to refuse to give their business to an auto body repair shop with which they are unable to agree on such a rate.”

Moreover, the court stated, insurers also had the right “to employ appraisers to negotiate the labor rate for such repairs on their behalf.”

It would be “an anomalous result, to say the least,” the court added, if every time an insurance company exercised its right to negotiate with an auto body repair shop for an hourly labor rate, and then proceeded to have its appraisers estimate the cost of repairing its insureds’ vehicles on the basis of that agreed on rate, it was somehow committing an unfair trade practice under CUTPA.

The court concluded that the auto body shop’s CUTPA claim could “not stand,” and the insurer was entitled to judgment as a matter of law in its favor.

The case is Artie’s Auto Body, Inc. v. Hartford Fire Ins. Co., No. SC 19219 (Conn. July 21, 2015).