Insurers won’t be able to mandate generic parts for car repairs if new legislation becomes law in Rhode Island. The state bill follows a string of nationwide lawsuits that raised concerns about the commonplace practice in the insurance industry.
The Rhode Island General Assembly bill would prohibit insurance companies from requiring auto body shops to use after-market parts without the vehicle-owner's consent. The rule would apply only to vehicles less than 48 months from the date of manufacture.
Insurers contend that using these parts instead of original equipment manufacturer (OEM) parts cuts down on costs and significantly reduces the price of insurance for policyholders. They further assert that OEM parts are no safer than their generic counterparts, and the Certified Automotive Parts Association inspects and guarantees the quality of all generic parts used.
But some repair shops claim they are forced to cut corners because insurers won’t cover the expense required for adequate repairs.
The back-and-forth discussion highlights the potential trouble with direct referral programs, or DRPs, where insurers direct their policyholders to preferred repair shops. In return, shops offer insurers discounted rates.
Theoretically, such an agreement should lead to more business for shop owners and lower costs for insurers and their policyholders. But the arrangements have also been blamed for encouraging inadequate repairs. Such was the case with Dallas natives Matthew and Marcia Seebachan, who won a $31.5 million lawsuit against John Eagle Collision Center after the shop deviated from Honda's recommended repairs. The couple were critically injured in an accident following the repair.
Though it accepted liability for the incident, John Eagle pointed fingers at the referring insurance partner for not paying enough for a satisfactory repair. Instead of welding, the shop used glue to attach the roof to the car. But the shortcut caused the vehicle to buckle during a collision, trapping both the driver and passenger in a burning car.
The Seebachans are also filing a symbolic lawsuit against the insurance company that directed the shoddy repairs. With their bill, Rhode Island lawmakers hope to prevent the need for similar lawsuits in the future. Whether the legislation will increase insurance premiums remains to be seen.