Fraud Perpetrator Attempted to Use Court to Enforce Fraud
Allstate maintains a network of repair shops called Good Hands Repair Network (Allstate’s “network shops”). The network shops repair vehicles at the price set forth in Allstate’s approved estimates of repairs with no out-of-pocket cost to the insured other than the policy deductible. Insureds are not required to use a network shop and have the right to select the repair facility of their choice. A body shop sued because it charged more than the Good Hands Repair Network and Allstate refused to pay their rates and found fraud in there repair estimates. In Exclusive Auto Collision Center v. Allstate Insurance Company A/K/A Allstate New Jersey Insurance Company, Encompass Insurance; et al, Civil Action No. BER-L-1784-20, Superior Court of New Jersey, Law Division, Bergen (January 12, 2022) the New Jersey Court resolved the litigation.
BREACH OF CONTRACT CLAIMS
Exclusive is not a network shop. Exclusive performed repairs on the 167 vehicles involved in the litigation. Exclusive had the vehicle owners execute an assignment to Exclusive of their right to receive payment of insurance benefits so that Exclusive could receive direct payment from Allstate. Under Allstate’s policy with its insureds, it is obligated to pay for the cost to repair or replace the vehicle to its condition at the time of loss subject to state laws and regulations.
For each claim, an Allstate adjuster performed an initial inspection of the vehicle and prepared an estimate for the price of the vehicle repair for the damage that was visible during the inspection. Allstate’s estimates and supplements always use the labor rates paid to its network shops. Allstate used the CCC One Database, a repair estimating software approved by the Department of Banking and Insurance (“DOBI”), to provide the appropriate amount of labor time for a particular repair task. As Exclusive repaired the vehicle it prepared its own estimate setting forth the scope of repairs and the time it claimed was necessary to perform the repairs. Exclusive presented its damage analysis to Allstate’s appraiser during the re-inspection process.
In addition to its claims for higher labor rates, which were previously dismissed, Exclusive’s estimates and supplements exceeded the price of Allstate’s estimates and supplements in three primary ways:
additional labor time in excess of the time provided for by the DOBI approved CCC One estimating system as set forth in Allstate’s estimate;
reimbursement for other procedures that all relate to painting and refinishing the vehicle; and
ancillary procedures that are not approved by Allstate in its estimate.
None of the charges demanded by Exclusive in this litigation were approved in Allstate’s estimates.
EXCLUSIVE’S TORT CLAIMS AND ALLSTATE’S INSURANCE FRAUD INVESTIGATION
Allstate began investigating Exclusive for insurance fraud in approximately 2011 after an insured was involved in an accident and chose Exclusive for repairs. During the repair, Allstate adjusters reported questionable items on Exclusive’s repair estimate. Allstate retained an engineer to inspect the vehicle who determined that Exclusive charged for repairs that it did not perform.
Exclusive sued Allstate for additional compensation for vehicle repairs in the Superior Court of New Jersey, Law Division. Later, Exclusive began filing similar litigation against with special part lawsuits that involved a separate vehicle. Exclusive brought fourteen Special Civil Part cases to wear down Allstate’s defense. In response Allstate instituted an action against Exclusive for violation of the New Jersey Insurance Fraud Prevention Act.
Exclusive filed an Amended Complaint asserting claims for defamation and tortious interference.
RULE OF LAW AND DECISION
In the First (Breach of Contract), Second (Unjust Enrichment), Third (Quantum Meruit), and Fourth (Failure to Negotiate) Counts of the Complaint, Exclusive seeks to compel Allstate to pay additional amounts above the final estimates for each of the repairs at issue in the litigation. Exclusive, as assignee of the insured, can only get that which the insured agreed to by the contract with the insurer, which was what the insured was going to receive based on the adjusted costs.
Allstate adjusted each motor vehicle claim and paid Exclusive the amount of the final estimate, after full inspection of the vehicle. Allstate paid the amount it was obligated to pay under the policy, and Exclusive has no other contractual relationship with Allstate. If Exclusive had any claim for additional payment for the repairs, that claim would be against its customer, rather than Allstate.
Allstate’s obligation to pay was limited to the price that would be accepted by one of its network shops. Thus, Exclusive has no legal basis to claim that it should be entitled to more payment from Allstate.
Furthermore, there can be no unjust enrichment or quantum meruit claim against Allstate as a matter of law because an express contract exists concerning the identical subject matter, namely the assignment between the insured and Exclusive, which automatically defeats any quasi-contract claim.
Contrary to Exclusive’s allegations there is no statutory nor common law cause of action for refusal to negotiate.
Allstate and Exclusive negotiated the scope of repairs through an initial inspection, and those negotiations are often extended through a re-inspection and repair supplement prepared by Allstate. The additional items in excess of the estimate, about which Exclusive complains, were never agreed to by Allstate. The common law duty of good faith applies only when an agreement is reached.
EXCLUSIVE’S TORT CLAIMS
Exclusive asserted nebulous defamation and tortious interference claims against Allstate. However, in New Jersey, the litigation privilege is an absolute privilege that shields a litigant from tort actions based on “any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.” Hawkins v. Harris, 141 N.J. 207, 216 (1995).
The purpose of the privilege is to encourage open channels of communication and the presentation of evidence in judicial proceedings. The privilege is not limited to in-court statements; it extends to all statements or communications in connection with the judicial proceeding.
Allstate began investigating Exclusive for insurance fraud in 2011. The parties have been in litigation against one another consistently since that time. All the allegedly defamatory statements were made by Allstate adjusters. Third, all the statements were made to achieve the object of the ongoing litigation between Exclusive and Allstate, namely its obligation to deter insurance fraud under the Insurance Fraud Protection Act, protect its insureds and defend against Exclusive’s improper attempt to subvert a statute requiring insurers in the State to submit plans to prevent fraud.
Exclusive’s tortious interference claim was dismissed for the same reason as the defamation claim; namely Allstate’s statements are absolutely privileged, the statements of opinions are not actionable, and Exclusive has no damages.
Allstate’s Motion for Summary Judgment was, therefore, granted.
When faced with an attempted fraud it is an insurer’s obligation to refuse to succumb to the claims of the fraud perpetrator and use the courts to defeat the fraud. Exclusive tried to recover more than they were entitled to receive for repairing a damaged vehicle by bringing multiple lawsuits against Allstate as assignee of the owner of the vehicles damaged. Allstate should be commended for its strength and refusal to be harassed into paying fraudulent claims.
© 2022 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
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