The Rhode Island Supreme Court in June reversed a lower court decision that would have required insurance labor rate surveys to be used as the sole determinant in establishing prevailing auto body labor rates. Oral arguments were heard in February.
The case, Auto Body Association of Rhode Island (ABARI) vs. State of Rhode Island Department of Business Regulation (DBR), dates from 2008 when a Superior Court judge ruled that insurers had to use the surveys as the sole way to establish labor rates. The Supreme Court later moved to stay the lower court's decision, pending the hearing.
In a statement from ABARI, attorney Jina Petrarca-Karampetsos said that the group was disappointed in the ruling.
"The ruling will require insurers to consider the information sent to them by the shops in the survey when they determine the labor rate, but it allows them to consider other factors," Petrarca-Karampetsos says. "It's important to note that even with the interpretation of the Supreme Court, it's still the first of its kind in the country where insurers have to take into consideration what shops report, within reason and within the standard. If it's an appropriate and properly filled out questionnaire, they have to consider it."
The original case arose after a dispute over the department's interpretation of Rhode Island law that the survey was not the sole determinant of the labor rate. Insurers had previously been able to use a variety of factors in determining the rate, including rates from neighboring states, CCC Information Services and Mitchell International reports, subrogation and other methods.
The 2006 labor rate survey statute requires that insurance companies with more than 1 percent of the market use a standardized form to survey body shop labor rates. Prior to the survey law (a veto by Gov. Donald Carcieri was overridden by the legislature), the, labor rates in Rhode Island were approximately $38 per hour, having risen just six dollars in 20 years. After the law went into effect, the average rates went up to $45 per hour for body work and $60 for mechanical (rates varied depending on geography and insurer).
ABARI appealed the DBR's decision to the Superior Court, while the Property Casualty Insurers Association of America (PCI) filed to have the court affirm its interpretation. After Superior Court Judge Netti C. Vogel ruled in favor of ABARI, PCI filed a motion for clarification, asking the judge to alter the language of the ruling. The judge then reaffirmed her original decision, prompting PCI and DBR to request a judicial review with the Supreme Court asking for an appeal.
The insurance industry has characterized the original bill as unconstitutional, and a number of insurance companies filed amicus briefs in the case making that argument.
"We are pleased with the ruling. It upholds PCI's and the department's position that the proper interpretation of the law is that a labor rate survey is one tool to be used and not the sole determinant of rates," says Frank O'Brien, PCI vice president. "This decision restores a system of checks and balances regarding the establishment of a reasonable labor rate and protects consumers and insurers from the possibility of higher auto body repair costs. While this decision is good news for consumers, auto body repair issues remain a significant concern. Insurers remain committed to helping consumers make sound decision about repair claims."
According to the ABARI statement, the group still considered it a victory that the 2006 law has not been altered: "Though the court did not apply ABARI’s interpretation, we are pleased that this law, the first of its kind in the country, remains in effect, despite insurers attempt to characterize it as unconstitutional. The ruling confirms that insurers must consider and include data from shops in the prevailing labor rate, (though insurers argued this was only a suggestion, not a requirement), and must demonstrate how it was calculated."
ABARI plans to approach the legislature during the next session to make changes in the labor rate survey law to moot the Supreme Court ruling.
