Price-Fixing Case Reinstated
A recent article published by Daily Business Review, stated Auto body shops claiming insurance companies unfairly depress repair prices or price-fixing won a key reversal in federal appellate court.
The U.S. Court of Appeals for the Eleventh Circuit reinstated antitrust multidistrict litigation Thursday that claims State Farm and at least nine other insurers teamed up to set an arbitrary reimbursement rate for repairs.
The body shops also allege the insurance companies steer policyholders away from shops that charge a higher rate. The practice amounts to illegal price-fixing and tortious business interference, the shops claim.
The federal and state claims were initially dismissed by a federal judge in the U.S. District Court for the Middle District of Florida because the auto body shops did not plead facts that directly supported the existence of an agreement among insurance companies to fix prices.
Instead, the lawsuit aimed to show “supporting circumstances such as parallel conduct, adoption of a uniform price despite variables that would ordinarily result in divergent prices, and uniform practices,” according to the appellate court.
But the Eleventh Circuit ruled the shops’ facts were sufficient to imply an agreement and move the lawsuit forward, based on the allegation that the insurance companies use a market labor rate that one company – State Farm – “determines and manipulates.”
The Artificial Labor Rate
The rate is determined through a “half plus one” method, according to the lawsuit. If there are 20,000 auto body shop mechanics in the market area, half plus one would be 10,001. The insurance company lists the shops in the area in order of fewest employees to most and checks the market rate of the shop that employs the 10,001th employee. That rate becomes the market rate.
“It is unclear how the method designates a market area,” the Eleventh Circuit wrote. “No insurance company other than State Farm has attempted to independently verify the results of this method.”
State Farm also manipulates the rates entered into the database in the first place by removing or threatening to remove shops that submit above-market rates, according to the court documents.
“By using an unverified method of calculating the market labor rate and by manipulating the results, State Farm achieves a wholly artificial market labor rate,” the court wrote in describing the allegations related to price-fixing.
State Farm said it is reviewing the decision. Other insurers include Travelers, Progressive, Allstate Insurance Co., Nationwide Mutual Insurance Co., USAA, Hanover Insurance Group, 21st Century, GEICO and Liberty Mutual Insurance.
Other insurers use the rate despite working with different shops and possibly defining market areas differently based on where their offices are, according to the allegations.
Price-Fixing Allegation Rulling
“The body shops’ allegations, accepted as true, readily and plausibly establish both parallel conduct and the ‘further factual enhancement needed to support a plausible inference of an agreement,’” the Eleventh Circuit ruled.
Eleventh Circuit Judge Charles Wilson wrote the opinion, with U.S. District Judge Barbara Jacobs Rothstein of the District of Columbia, sitting by designation, concurring.