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Pennsylvania prohibits accident response fees

Thursday, January 10, 2008 - 01:00
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The Pennsylvania legislature passed a new law in December that prohibits municipalities from charging a fee when local police or fire departments are called to the scene of an automobile accident. The new law (House Bill 131) was signed by Governor Ed Rendell on Dec. 18.

"Pennsylvania is demonstrating leadership by advancing this legislation," said Angela Zaydon, regional manager and counsel for the Property Casualty Insurers Association of America (PCI). "At its most basic level, these proposals amount to a form of double taxation because emergency response services are already paid for through property and other local taxes."

Last year, Missouri became the first state to pass such a law. A similar bill in Indiana was vetoed by the governor in May after passing the state legislature.

The Pennsylvania law prohibits local governments from charging a fee for costs incurred when responding to an accident scene, including labor, materials, supplies and equipment.

An increasing number of local governments are considering these fees as a potential source of new revenue. According to PCI, municipalities in 18 states currently charge such fees, and often justify them by pointing out that their local and police and fire departments provide services to drivers who may not live in the community. This is especially true for smaller communities that respond to a large number of highway accidents, for example.

The fees appeal to cash-strapped towns and cities that otherwise face laying off police and fire department employees in response to shrinking tax coffers. Opponents, however, say that these fees amount to a double-tax for services that should already be covered by departmental budgets.

In some cases, fees are targeted primarily at out-of-town or out-of-state drivers. In others, only at-fault drivers are charged the fees. According to Zaydon, the fee structures can vary wildly even within the same community. Fees can even be charged when emergency personnel weren't directly called to the scene of the accident, or when the accident did not result in an injury to the drivers involved.

"In some areas they were only focusing on truckers, and some were only focusing on out-of-municipality drivers," Zaydon says.

Although these fees don't directly impact repairers, PCI senior director of claims John Eager made response fees part of the annual PCI presentation at the most recent NACE, noting that such fees can become an issue during the claims settlement process.

The insurance industry has been lobbying in opposition to these fees in several states, and has set up a Web site, AccidentTax.com, to educate the public about them. The Ohio Insurance Institute has set up its own Web site, www.accidentresponsefees.com. Nearly 30 municipalities in Ohio have established response fee programs.

Third-party billing companies have been touting the benefits of the fee programs to communities for several years. Dayton, Ohio-based Cost Recovery Corp. (also known as Safety Services Billing) has been one of the primary proponents of accident fee programs, and collects money on behalf of fire departments in several states. CRC's Web site offers "getting started" tips for its potential customers, and the company provides sample documentation for city ordinances and press releases to educate residents about the fees. The Web site claims that the programs will not increase insurance premiums.

"The pitch they're giving these communities is not accurate," Zaydon says.

A number of municipalities have proceeded with fee programs under the assumption that insurance companies would most likely pay the majority of fees, but this is frequently not to the case. The fees are billed to insurance companies, but are not necessarily covered under most standard policies. Drivers often wind up with a bill that can range from a few hundred to a few thousand dollars.

In a report published last year, the Insurance Information Institute stated that, "Clearly, if insurers were to start providing coverage for additional accident response services, including police and fire, the cost of auto insurance would be likely to increase."

That same report noted the influence of third-party billing companies that have encouraged many communities to adopt the fee programs.

"Various reports suggest that some collection companies may be engaging in questionable tactics, such as helping draft the city ordinances that authorize them, inflating charges for accident response services, employing aggressive methods to force insurers to pay the fees, or even seeking payment directly from policyholders in the event that their insurer refuses to pay the fees," the report says.

A number of states are now considering legislation similar to what has already passed in Missouri and Pennsylvania, and communities in Ohio and Florida that had proposed accident response fees have now put those plans on the back burner.

Some cities are also starting to have second thoughts about existing programs, largely because of the negative press and, in some cases, the disappointing financial returns they have generated. Two Rivers, Wis., recently repealed its accident fee program, and the city council in Wyoming, Mich., appears poised to do the same. According to an article in the Grand Rapids Press in December, the town of Wyoming collected approximately $140,000 in fees during the program's first year, $60,000 less than expected.

"This is really a double tax," Zaydon says. "These are public safety services already paid for by your property and income tax. We understand that municipalities are under tight budgets, but this is not the way to fix the problem."

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