Insurance companies may underpay for services. Here's what your business should do to receive the full amount of funds you are owed.
Since 2006, Phil Mosley, manager of Valley Paint and Body Inc. in Amelia, OH, has taken insurance companies to court 12 times for underpayment. He says insurers often only pay 80 percent of his total repair bill. The discrepancies between his and the insurer’s numbers are generally materials or labor rates. Insurers frequently pay only $44 per hour for labor, says Mosley, who charges $50 per hour at his shop.
So far, Mosley has won all of his cases. While he won’t disclose the amount recovered, he says it amounts to 75 percent of his accounts receivable. And he says he owes his legal success to his attorney, who helped him write an Assignment of Proceeds form.
That’s something all shops who do DRP work should do, recommends Erica Eversman, chief counsel at Vehicle Information Services.
Assignment of Proceeds forms, recognized in courts throughout the United States, are signed by customers when they drop their car at the shop, Eversman says. It allows shops to collect repair payments directly from the insurance company. If the payment insurers send is anything short of what’s owed, the form gives shops the ability to take legal action against insurers to acquire the remainder due — without the customer having to get involved in the process.
“It essentially puts the body shop in the shoes of the customer to collect payment that’s due under the terms of the customer’s insurance policy,” Eversman says.
Mosley’s recent legal success shows that the form is proving profitable in court. And some insurers seem to be getting the point. Mosley says he is able to agree on payment with insurance companies 97 percent of the time. Insurance companies are starting to understand that shop operators are serious about getting paid, he says, and they are paying the money rather than wasting time with court proceedings. Mosley says each case he brought to court required about 10 hours of time, for preparation and court proceedings.
Eversman says shop owners who use an Assignment of Proceeds form are taking smart steps to ensure they can receive payment due for DRP work, while providing themselves with a legal option if that payment shows up short.
$3,000 LEARNING CURVE
For many shops, DRP work is a solid source of jobs for collision repairers, but it’s not without its headaches. Eversman says shops that charge for every line item necessary for a repair often get pushback from reluctant insurers.
Mike Anderson, former owner of Alexandria, VA-based Wagonwork Collision Centers, agrees. Insurers cap labor rates, paint materials and stock materials like seam sealer and undercoating, he says. That happened on 20 percent of the DRP jobs in his shop.
“Shops are trying to get paid fairly for the actual amount of work they perform — for the necessary repairs and for the materials they put on a car,” Eversman says.
Anderson says collision repairers have four choices on how to handle situations when insurers disagree on repair costs: accept what the insurance company pays, charge the customer for the difference, decline the job, or use an Assignment of Proceeds form to recoup the difference.
Using an Assignment of Proceeds form is the best way for collision repairers to establish — in a legal forum — that the work done in the shop was necessary, and they are entitled to be reimbursed in full for the job. The other options, Eversman says, only alienate customers and limit a shop’s profit potential.
View a sample Assignment of Proceeds form here. DISCLAIMER: This form is a sample only. Please consult with your attorney before using the form in your business.
Anderson now uses the form, but he didn’t always — and he learned his lesson the hard way. As a rule, he never released a vehicle from his possession until receiving payment in full. A lot of insurance companies fight that, he explains, and “will tell you anything you want to hear just to get you to release the car to the customer.”
That’s what happened on a $28,000 repair Anderson made on a Mercendes-Benz. The insurer asked him to release the car, saying a check was on the way. Anderson, breaking his own rule, complied. A few days later, a $25,000 check arrived — $3,000 short of the repair total. The insurer refused to cover the remainder of the cost.
With a bad taste in his mouth from the experience, Anderson implemented an Assignment of Proceeds form in his shop to be assured he wouldn’t risk losing out on a chunk of cash like that again.
It was a good thing he did. Anderson says he experienced more than a dozen similar situations over a two-year period, which he compiled and took to court all at one time.
“The process can be much more cost-effective when you aggregate multiple cases into one,” Eversman says.
The legal process took about six months, but Anderson says he recouped $30,000 in all — money he never would’ve seen otherwise.
Eversman says it’s not terribly difficult for shops to win these cases, as long as the repairer can clearly explain their perspective and are “represented by a savvy attorney who can understand and anticipate the opposition’s arguments.”
MONEY IN THE WRONG HANDS
The battle between insurers and collision shops over repair costs has been a sticky situation for years — and likely will continue to be, Eversman says. But an Assignment of Proceeds form is one way for shops to begin to bring about industry-wide change.
Bob McSherry, owner of North Haven Auto Body in North Haven, CT, completed a $900 repair on a DRP job without using an Assignment of Proceeds form. The insurer asked McSherry to release the car, and said payment would be sent immediately.
McSherry did as he was asked, but the insurer sent the payment to the customer, rather than the shop. McSherry says he spent hours tracking the customer down — who, as it turns out, cashed the check and denied he had ever received it from the insurance company.
“We had an electronic image of the check with the customer’s signature on the back,” McSherry says. The customer continued to deny, deny, deny, and the insurer refused to send a second payment.
“I could have gone to small claims court, but you have to judge your investment of time versus the amount of money you’re going after,” McSherry says, noting that $900 wasn’t quite worth the effort.
It’s also a lot harder to win those cases without an Assignment of Proceeds form because it’s difficult to prove whether it’s the customer or the insurer who is at fault, Eversman says. And it’s more difficult to pursue legal action against individual consumers.
“An Assignment of Proceeds form would have given [McSherry] substantially greater leverage against the insurance company to get his money back,” Eversman says, “because the customer would have waived any rights they had to receive any proceeds, and the insurance company would have been in the wrong by sending the payment to the wrong person.”
Unfortunately, that wasn’t McSherry’s only losing experience. Similar situations occurred on four occasions, ultimately robbing him of $3,000. Scenarios like this play out daily in collision shops. “Shops are hurting because they don’t have the cash coming in when they need it,” Anderson says. “Then they’re wasting time chasing down money.”
Mosley hopes his recent legal action will help solve this industry problem, he says, by winning these cases and proving that shops should be reimbursed in full for making a proper repair. Mosley hopes his cases will set an example, and establish enough legal precedent to guarantee shops won’t have to waste time chasing money they are rightfully owed.
“If I can have a court find — on a repeated basis — that insurance companies don’t have the right to say, ‘Whatever I say is all I’m going to pay,’ my hope is that we won’t have to [go to court] anymore,” Mosley says.
LEGAL SAFETY NET
Ideally, an Assignment of Proceeds form will become a mere safety net for your shop, Eversman says. Avoiding problems from the get-go, some shops have found, is possible with good communication with customers and insurers. Pete Latuff, owner of Latuff Brothers Auto Body in St. Paul, MN, says 80 percent of his shop’s work comes from DRP jobs, and he hasn’t been burned on a payment yet. While it’s not uncommon for insurers to disagree with him on repair costs, Latuff says, he’s avoided any significant problems by addressing potentially contentious issues before the repair is done:
- Communicate expectations from the start. Latuff discusses every line item on an estimate with insurers before he begins the repair. He talks about what items he expects to be covered by the insurer. “We try to be transparent about what we expect,” Latuff says. “Be proactive about payment expectations, not reactive.”
- Maintain communication with the insurer and customer during the repair process. The front office needs to call insurers and customers regularly with any changes on the repair status, Anderson says. They should also be contacted two days before the repair is complete to review the payment policy.
- Avoid last minute supplement changes. “Shops shouldn’t hit customers or insurers with charges at the end they weren’t aware of to begin with,” Latuff says.
- KEEP RECORDS AND DOCUMENTATION. “IF YOU CAN DOCUMENT WHY YOU HAD TO DO CERTAIN REPAIRS, THERE ISN’T USUALLY A BIG FIGHT,” LATUFF SAYS. “WE TRY TO EDUCATE THE INSURER AS TO WHY WE CAN’T DO CERTAIN THINGS THE WAY THEY MIGHT WANT.”
Proactive communication has worked for Latuff so far, although he does keep an Assignment of Proceeds form at hand, just in case.
“Insurance companies are trying to cut their costs by limiting the types of repairs given to the customer,” Eversman says. “They’re gouging profit out of whatever they can force the shop into accepting.”
Using the form gets shops paid in a timely fashion, McSherry says, and it reduces the administrative work involved in chasing money and the people who owe it. The way he sees it, there’s no question about the importance of an Assignment of Proceeds form: “Why would any shop owner not want to guarantee they get paid for the work they do?”
This article originally appeared in the July 2010 issue of FenderBender, the only magazine edited exclusively for collision repair shop owners and operators that examines real-world struggles, successes and solutions from the industry. To get the latest news or to subscribe, go to fenderbender.com.