Opinion ID: 395210
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 This case focuses on the policies and practices of the defendant insurance companies in processing automobile damage claims. Each company has developed its own system for dealing with the claims of policyholders in what it deems an economical and efficient manner. Quality does not dispute either company's explanation of the basic facts of their respective damage claim procedures. A. Allstate 3 Under the terms of an Allstate automobile insurance contract, the owner of a damaged vehicle must contact the insurer before any repairs are made. The company has the option to pay for the loss in money or ... repair the damaged property. In either case, Allstate's liability is limited to the reasonable cost of repair or replacement with a product of like kind and quality. 4 After an Allstate adjuster has examined the loss, he prepares an estimate based on his individual evaluation of the extent of the damage to the vehicle and the competitive cost of repairing that damage. The competitive rates used by Allstate are established by Allstate personnel on the basis of market information gathered from the reports of adjusters who frequent area repair shops and from the unsolicited statements of shop owners who inform the company of their rates from time to time. 5 Most of Allstate's claims are processed under the company's shop of the customer's choice policy. This policy permits the insured to choose the shop which will repair the damaged vehicle. After Allstate has prepared an estimate and determined the extent of its contractual obligation, the adjuster will attempt to reach an agreed price with the representative of the shop selected by the customer so that the insurance settlement will cover the entire cost of repairs (less any deductible). In the event that Allstate is unable to reach an agreed price with the shop, Allstate will pay the insured an amount which represents, in the company's opinion, the competitive cost of repair. If the insured still wants his selected shop to perform the repairs, the insured must pay the difference between the company's contractual obligation and the rate charged by the shop. 6 When the insured has no preference or asks Allstate for a recommendation, the company provides the insured with the name of a shop or shops which will in all likelihood be willing to repair the vehicle for the price shown on the Allstate estimate. The company claims, however, that the shop remains free to change its quoted rates at any time, to question the nature and scope of the repair indicated on the estimate, to negotiate a different price for repair of the vehicle and even to refuse to perform the work at all. 7 Allstate will also permit certain shops to begin repairing vehicle damage insured by Allstate without waiting for the company to inspect the loss. This direct repair program was introduced by Allstate in 1975 allegedly to improve the quality and speed of service which the company provides to policyholders and claimants. Allstate personnel determine the circumstances under which a shop is chosen for participation in this program. The company selects shops which, based on past experience, prepare competent estimates and perform quality repairs at competitive prices. If Allstate is dissatisfied with a shop's repair work or its estimates, the company will no longer utilize the shop in the direct repair program. Allstate emphasizes that this program is not a substitute for the company's shop of the customer's choice policy and is used only in cases where the customer expresses no shop preference. B. State Farm 8 State Farm's procedures for handling damage claims are very similar to those used by Allstate. State Farm agents appraise damage to a vehicle by evaluating the parts which need to be replaced, the price of those parts and the number of hours needed to reasonably complete the repairs. The cost of repairs is calculated at the prevailing competitive price for the required parts and labor in the relevant geographic area. This price is determined through periodic surveys of local garages conducted by State Farm personnel. The information obtained during the survey is assembled into a garage directory, which lists the names and addresses of all participating facilities in a particular area and the parts discounts and hourly labor rates charged by each facility. State Farm's prevailing competitive price generally represents the rate charged by a substantial number of the shops surveyed. 9 At the time this suit was filed, State Farm had determined that the prevailing competitive prices for the area serviced by Quality were $14.00 per hour for labor and 15% off the list price for new parts on domestic automobiles. These prices had been computed following a telephone survey of 86 shops (including Quality) in the area. The survey revealed that 84 of the 86 shops charged an hourly rate of $14.00 or less. Quality, however, charged $16.00 per hour and increased the rate to $20.00 per hour several months later. The survey also indicated that over 70% of the shops offered some discount off the manufacturer's suggested list price for new parts on domestic cars. Quality was one of only a handful of shops that refused to give any discount at all. 10 Like Allstate, State Farm permits the insured to select the garage of his choice, but the company will pay only what is reasonable or necessary to reimburse the owner in accordance with the terms of the applicable insurance policy. A garage is free, however, to challenge the nature and scope of the repairs listed on a State Farm estimate and may negotiate with State Farm for a modification in the amount of the damage appraisal. If an insured has no shop preference and requests a recommendation from State Farm, the company will provide the insured with a list of conveniently located shops which will be likely to perform the required repairs at a competitive price. But State Farm emphasizes that these shops may choose to change their labor rates, parts discounts or repair policies at any time. C. Quality's Complaint 11 Quality charges that defendants have, by concerted action, established claim procedures which constitute per se violations of Section 1 of the Sherman Act. 15 U.S.C. § 1. Specifically, Quality maintains that defendants' repair estimates illegally fix the price which Quality may charge for labor and parts at the lowest prevailing competitive rate. If Quality seeks a higher rate, defendants inform the insured that they will pay only the prevailing competitive price and suggest that the insured remove the damaged vehicle to a shop which will perform the work at the defendants' price. Quality claims that this pricing policy artificially suppresses the rates charged for auto repair in violation of the antitrust laws. 12 In addition, Quality contends that the defendants maintain lists of body repair shops which agree to charge the rates established by the defendants and direct insureds to these preferred shops for automobile repairs. According to Quality, these vertical agreements not only reinforce defendants' price structure but also effectively withhold business from shops which do not participate in defendants' pricing program. Quality claims that defendants' action amounts to a boycott of non-conforming shops and also violates Section 1 of the Sherman Act. 13 In ruling on both plaintiff's and defendants' motions for summary judgment, the district court grouped plaintiff's claims into three categories: (1) horizontal price-fixing (involving alleged agreements between Allstate and State Farm to pay damage claims at the lowest competitive rate and to compute damage estimates on that basis); (2) vertical price-fixing (involving alleged agreements between each insurance company and preferred repair shops to perform work at the rate established by the company's estimate); and (3) boycotts (involving alleged efforts on the part of the insurance company to deny business to plaintiff by refusing to reimburse plaintiff at a rate which exceeds the lowest prevailing competitive rate). The court concluded, as to alleged horizontal price-fixing, that documents submitted by defendants and uncontradicted by plaintiff conclusively establish that there have been no agreements between the defendants regarding the establishment of prices for automobile repair. Quality Auto Body v. Allstate Insurance Co., 1980-2 Trade Cases P 63,507 at 76,696. As to the charges of vertical price fixing, the court assumed, for the purposes of the summary judgment motion, that each of the defendants had entered into provider agreements with certain preferred shops regarding the price of repair. But after analyzing these agreements under the rule of reason, the court determined, as a matter of law, that such provider agreements do not, in and of themselves, violate the Sherman Act. Finally, the court found no factual basis to support a holding that defendants engaged in an illegal boycott of plaintiff's business. As a result, the district court granted defendants' motion for summary judgment and dismissed the case.