Conn. Court Overturns $35M Verdict in Hartford’s Auto-Repair Labor Rate Case

July 22, 2015

The Connecticut Supreme Court on July 13 unanimously overturned nearly $35 million in damages against the Hartford Fire Insurance Company.

In its 18-page decision, the Supreme Court said the lower court had incorrectly concluded that the Hartford Fire violated the state’s unfair trade practices law when it paid auto repair shops agreed-upon labor rates that the plaintiffs claim are lower than the actual value of the shops’ services.

The plaintiffs, Artie’s Auto Body, A & R Body Specialty, Skrip’s Auto Body, and the Auto Body Association of Connecticut brought the class action in 2003 against the Hartford Fire on behalf of more than 1,000 independent auto body repair shops in Connecticut.

Following a trial in 2009, the Superior Court jury found in favor of the plaintiffs and awarded $14,765,556 in compensatory damages. Later, the trial court awarded plaintiffs $20,000,000 in punitive damages and rendered judgment for plaintiffs in the total amount of $34,765,556. The Supreme Court’s July 13 decision overturns the lower court ruling as well as the monetary damages.

The plaintiffs had filed the class action asserting that the Hartford Fire, when appraising auto body damage sustained by its insureds, engaged in unfair trade practices by requiring its appraisers to use artificially low labor rates agreed on by the insurer and the plaintiff auto body shops. The plaintiffs said the rates agreed upon by participating auto body shops were lower than the rates that more accurately reflect the actual value of the services provided.

According to court documents, the appraisers, when negotiating with auto body repair shops on behalf of the Hartford Fire, 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, auto body repair shops contractually agreed to perform repairs at an hourly labor rate set by the Hartford Fire in return for “a steady stream of customer referrals.”

In 2000, the DRP labor rate was about $41 per hour. In 2009, during the time of the trial, the rate rose to around $46 per hour. The DRP rate was significantly lower than the $65-to-$78 hourly labor rates that were posted in the plaintiff auto body shops during the time of trial. However, the DRP hourly labor rates were equal to the rates that other insurance companies in Connecticut paid for auto body repair services, the court papers showed.

In addition, the Supreme Court stated in its July 13 ruling that regarding the auto body repair services purchased in Connecticut, almost all of those services are purchased by insurance companies. And since most of plaintiff auto body shops’ businesses are insurance-related, it is “exceedingly rare” for these shops to be paid their posted hourly labor rates.

The Supreme Court said the trial court incorrectly concluded that the Hartford Fire violated the state’s unfair trade practices law. The Supreme Court further noted that under the regulatory provisions, auto shop owners are deemed to be “capable of representing their own interests, and certainly are under no obligation to accept insurance related work that is not sufficiently remunerative.”

“It would be patently unreasonable, and result in an inherently contradictory regulatory scheme, for us to conclude both that the defendant is lawfully permitted to determine the hourly labor rate that it is willing to pay for auto body repairs and that the defendant’s appraisers are ethically required to disregard that determination when negotiating on the defendant’s behalf,” the Supreme Court stated.

The Supreme Court stated that the trial court judgment is reversed and the case is remanded with direction to render judgment for the defendant.

The case is Artie’s Auto Body, Inc. et al. vs. The Hartford Fire Insurance Company, No. 19219, the Supreme Court of Connecticut.

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