(CN) - Louisiana sued State Farm Insurance on Tuesday, claiming that its collision repair practices are virtually the same as monopolistic regimes the state fought, and thought it defeated, more than 50 years ago.
Attorney General James "Buddy" Caldwell claims in East Baton Rouge Parish Court that State Farm has engaged in a systematic scheme to control the automobile damage repair industry in the state to reduce its costs.
State Farm underwrote one-third of auto liability insurance policies in Louisiana in 2012, and collected more than $1 billion in premiums, Caldwell says.
The attorney general claims these practices are not only unfair to consumers, but also violate a 1963 consent decree entered into by the Kennedy-era Department of Justice and the three trade associations that constituted the majority of insurers in existence at that time.
Back then, the Justice Department complained automobile property insurers were conspiring to depress and control damage repair costs.
In practice, the DOJ said, the independent appraisers favored by the insurers were directed to recommend repair rather than replacement of damaged parts, told to use used rather than new parts, forced to restrict labor time, and that appraisers were told to steer repairs to shops that agreed to these practices.
Under the half-century old consent decree, auto insurers agreed to stop the practices, and were enjoined from instituting programs that had the same effects.
Caldwell claims that in contrast to the practices in place in 1963, State Farm and most other current-day insurance companies directly employ their own claims adjusters and damage appraisers, "obviating the need for a specific plan or system through which to exert control upon those facets of the automobile material repair process."
Today, the attorney general says, most insurers, including State Farm, use collision repair estimation software programs and databases that generate standardized labor times and materials, and keep lists of preferred repair shops to whom they steer business.
"Together, these factors - total control of adjusters and appraisers, utilization of software to generate standard labor times and rates, and implementation of DRPs [direct repair programs] - create an environment in the automobile collision repair industry that is nearly identical in practice to that which led to the 1963 Consent Decree," Caldwell says in the complaint.
Caldwell claims that State Farm uses programs called "Select Service" and "Parts Trader" to govern the repair process.
Under "Select Service," the participating repairers enter into a "select service agreement" to be placed on State Farm's list of recommended repair shops.
"Pursuant to the 'Select Service Agreement,' participating repair shops are required to engage in certain pricing structures dictated by State Farm for parts and labor rates," Caldwell claims. "State Farm purports to use a survey process to determine recent and/or market labor rates."
But, he says, "State Farm manipulates this survey process in a manner that artificially decreases the recent and/or market labor rates paid pursuant to the Select Service Agreement."
Caldwell claims that "The use of the parts Trader software platform removes the ability of the repair facility to freely select replacement parts that are most appropriate for a specific repair."
As a result, the attorney general says, "State Farm adjusters have become increasingly involved in the everyday tasks performed by repair facilities, including but not limited to locating specific replacement parts and mandating that repair facilities use the specific parts identified by the adjuster, even when the repair shop believes that such use is neither safe nor appropriate."
State Farm's restrictions unduly pressure repair shops to "forgo repairs that are visually imperceptible prior to the disassembly of the vehicle and the initial estimate, but which a prudent repair facility would deem necessary," Caldwell claims.
Caldwell seeks an injunction, restitution and civil penalties for violations of the state's Unfair Trade Practices Act.