Peddling Fiction: Update on Putative Class Action Against NJM

by Joshua Bauchner & Boris Peyzner, Mandelbaum Barrett PC

Three auto body shops (referred to as the Plaintiffs) united to pursue a putative class action against New Jersey Manufacturers Insurance (NJM), alleging it lied about them, disparaged them and worked to steer customers away from them…and took great pleasure in doing so! 

NJM has sought to cast the case as the Plaintiffs trying to “coerce NJM to pay more for repair work than the free market demands.” That is not what the case is about. These shops are trying to hold NJM accountable for its unconscionable business practices which have damaged the Plaintiffs’ businesses. 

Specifically, NJM seeks to hide behind Section 64 of the New Jersey Automobile Insurance Cost Reduction Act (AICRA). NJM’s theory is that repair shops must accept NJM’s pricing pursuant to Section 64 and that, apparently, Section 64 sanctions whatever other conduct NJM pursues to the detriment of shops like the Plaintiffs’. Put simply, NJM wants to use Section 64 as a get-out-of-jail-free card for its tortious conduct and statutory violations. But the flaw in NJM’s theory is that the New Jersey Administrative Code regulations that implement Section 64 are contrary to NJM’s position. NJM has a duty to act in good faith with and extend the same terms and conditions to all repair shops, but NJM instead chooses to disparage and steer customers away from the Plaintiffs’ facilities – a far cry from the required good-faith conduct.

Section 64 allows insureds to select an auto body repair shop of choice, provided the chosen shop “accepts the same terms and conditions from the insurer, including but not limited to price, as the shop, facility or network with which the insurer has the most generous arrangement” (N.J.S.A. 17:33B-36.1). It therefore follows that NJM must offer the same terms and conditions to Plaintiffs that it offers to its preferred (I.e. DRP) shops.

NJM casts Section 64 as only about rates, but Section 64 sweeps more broadly than that. First, “terms and conditions” includes more than labor rates and price. Offering the same terms and conditions requires NJM to afford the same opportunities to non-DRP shops as it does to its DRP shops, including, but not limited to, permitting non-DRP shops to self-appraise rather than wait for an NJM appraiser to visit the shop, causing delay and increased storage fees, which NJM then refuses to pay, even though they are not subject to Section 64. NJM also permits its DRP shops to rely on photographs to conduct the appraisal in violation of law. (See N.J.S.A. 39:13-1(6).) Second, price includes more than the labor rate. Price includes the total cost of repair, including (i) the number of hours to complete the repair, which impacts the total labor cost, (ii) the use of proper, lawful parts and (iii) the use of proper materials. 

Further – and significantly – Section 64 is not the take-it-or-leave-it provision that NJM makes it out to be. Section 64’s enabling regulations require insurers to “make all reasonable efforts to obtain an agreed price with the facility selected by the insured” per N.J.A.C. 11:3-10.3(e). NJM ignores this enactment. 

The New Jersey Department of Banking and Insurance (DOBI), the agency charged with adopting regulations to implement Section 64, determined that insurers “shall” negotiate with shops in good faith to establish price, in addition to offering shops the same terms and conditions as its most favorable arrangement with its preferred shops. This makes sense because price involves more than the mere labor rate as NJM pretends. 

For example, NJM insists that shops will not accept its imposed labor rate but ignores that the overall labor cost is tied to the amount of time it takes to repair. As a hypothetical example, say a non-DRP shop charges $60 per hour and completes the repair in three hours for a total of $180, while a DRP facility charges a contracted rate of $50 per hour for five hours of repair, the resulting labor cost of $250 at the DRP is actually significantly higher. 

NJM also refuses to pay for blueprinting which is critical to any repair as it determines, among other things, part pricing, what parts are needed, whether the vehicle meets specifications and what calibrations are needed. NJM also insists on the use of less expensive aftermarket parts, although those parts are not warrantied in the same manner as “parts available from the original manufacturer” and often are not of “like kind and quality” in violation of law, namely N.J.A.C.11:2-17.10(a) 11 & 12. 

NJM violates Section 64 by refusing to offer the same terms and conditions to the Plaintiffs because NJM refuses to engage with these shops or offer any terms and conditions at all. Instead, NJM peddles fiction about these three shops being problem shops which refuse to accept NJM’s rates, even though NJM has not engaged with the Plaintiffs about the particular customer’s claims. And when NJM does engage with them, it violates the enabling regulations by refusing to engage in good-faith discussion with respect to the terms and conditions of repair. NJM simply offers artificially and unlawfully reduced take-it-or-leave-it pricing. 

Fortunately, these three shops are working to ensure the court prohibits these unlawful practices, setting a statewide precedent for all insurers.

Want more? Check out the March 2024 issue of New Jersey Automotive!