Insurance Company Direct Pays Body Shop Instead of Car Owner
Is it acceptable for an auto insurance company to pay a body shop directly instead of paying the person whose car was damaged?
I’ve had three car wrecks in the past five years. Only the most recent one was my fault. In every case where I had the damage to the car repaired, the insurance company gave the check directly to the shop instead of paying me. This happened both when my insurance company paid and when I got hit by someone else and their insurance company paid. In the end I never really knew the cost of the repairs, and I always felt like I was victim of an underhanded, backroom deal between the body shop and the insurance company. Is it acceptable for an auto insurance company to pay a body shop directly instead of paying the person whose car was damaged?
Ted
Cincinnati, OH
David Williams writes:
Thanks for writing, Ted. What you have experienced in not uncommon across the nation. Checks are often given by insurers to shops rather than to car owners. Sometimes funds are even deposited directly from the insurance company’s account into the shop’s bank account. Thus, nobody sees a check! Handling claims in this manner is a frequent arrangement among insurers with their direct repair shops, but not so much with independent collision repair shops that choose not to participate in insurance network programs.
But, just because it happens all the time doesn’t make it right. So, in my opinion, you were justified in feeling suspect of the situation when you were bypassed, and money you rightfully had coming was given directly to body shops - especially in light of the fact that you didn’t even know how much you were ultimately paying.
I suppose handling payments in this manner has happened because consumers who receive a check early in the auto insurance claims process sometimes spend money earmarked for repairs on other things. When work to the car is complete a few weeks later they run short of having enough left to pay the bill in its entirety. Shops that oftentimes have a tremendous amount of money invested in parts, labor and materials are left holding the bag. This is not good for any business, but especially body shops who complain about net profit percentages in the single digits and fewer and fewer cars to work on each year.
A few years ago insurance claims adjusters would make checks payable to both a claimant and a body shop. Both parties had to sign before anyone could get use of the money, and the check was often held by the body shop until the car was completed. The claimant was protected in that if he didn’t like the work he wouldn’t endorse the check. Shops, too, received protection because they knew the money was waiting in its entirety. All they had to do to put it in the bank was complete the job and satisfy the customer.
Then banks began demanding to be included on the check for protection in their own right when they had money loaned against a vehicle. It wasn’t very long until three signatures were needed to cash a check - one each from the vehicle owner, the body shop and the bank. For the shop, the bank’s sign-off was the most difficult to obtain. It required the shop have someone drive the vehicle to the bank to be inspected, then wait patiently for the signature of someone authorized to sign on the bank’s behalf.
Many banks reasoned that in cases where a car owner was delinquent on a loan, they should demand money from repair funds to bring payments current before agreeing to add their endorsement to the check. Financially-strapped car owners complained, but left with no other choice they gave in to the bank’s demands which left them short on repair funds. Shops, again, were left holding the bag when their customers couldn’t finalize payment for repairs. In these cases, a shop would have no other choice than to keep the car in storage and sue consumers who were already struggling financially. It was a no-win situation for body shops.
With the inception of direct deposit, shops could smile again knowing their money was safe. It has since become a tool insurers use to scratch the backs of shops on their preferred list of repairers. In essence, if a DRP treats his insurance partner good by keeping costs down, insurers may return the favor by seeing to it that funds are exchanged promptly, sometimes even before work is completed. With direct deposit, shops no longer have to worry about obtaining the endorsement of a bank. Likewise, the requirement for customer satisfaction is also relaxed in these sweetheart deals because insurers often override the opinion of car owners and pay shops despite knowledge of complaints. The result is that body shops no longer have to worry with making finicky customers happy at any cost.
In a perfect world a consumer would pay for body repairs with his/her own funds, then demand reimbursement from the first-party insurer or the at-fault party. But, few people can pay out thousands of dollars for a repair without first obtaining some funds. Therefore, I think it’s safe to say that most consumers having repair work done are perfectly happy to allow an insurer to ease the burden of handling payment with the shop. Again, it’s not right but it’s a practice that isn’t likely to go away anytime soon.
It may ease your mind to know that when consumers boisterously object, insurers often give in and pay them directly. In fact, when a consumer isn’t sure if he wants repairs completed or where he might have them done, or if he wants to hold off for a while before contracting with a repair shop, insurance companies have little choice but to go ahead and make payment direct to the car owner.
One caveat: if you do accept money from an insurance company before contracting with a body shop, make sure you understand that parts are often damaged and hidden from view making it difficult to accurately assess the exact amount of money that will be required to facilitate repairs. Insurers are masters of paying for only what can be seen without allowing for hidden damages that can be reasonably anticipated. There will often be high-fives and even bonuses at stake if an adjuster can best you during the negotiation and get you to accept an amount less than the actual cost of repairs.
Use your head and you won’t likely be taken advantage of, Ted. If we can be of help, please feel free to contact us. Never let yourself be put in a situation where you don’t know the final cost of repairs after an accident.
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