Deductible Waivers and Rebates by Automobile Collision Repair Shops

Question from a reader to explain the Insurance Department's two recent OGC opinion letters on automobile repair facilities waiving or rebating customers' deductibles.

Waiver of Deductible by an Automobile Collision Repair Facility (October 11, 2007)

Two questions were posed and answered in this opinion:

Question #1: Does the waiver or reduction of a deductible by an automobile collision repair facility violate New York Insurance Law?

Answer: Although there may be scenarios where the waiver or reduction of a deductible by an automobile collision repair facility would not constitute a violation of NY Penal Law § 176.05 (Insurance fraud; defined) and NY Insurance Law § 403(b) (Insurance Fraud Prevention; Prohibitions), this opinion focused on a set of facts that would constitute a violation of each of these statutes.

The inquirer (who is said to "work for a law firm") had reported that a New York automobile collision repair facility was advertising that it would pay the deductible, or a portion of it, to customers who used its service to repair automobiles that are subject to New York automobile policy collision or comprehensive coverage deductibles. The inquirer has noticed advertisements that used the following language: "XYZ - Home of the Deductible Rebate"; "XYZ - will pay your deductible"; and "XYZ - will actually pay a portion of your deductible".

OGC Senior Attorney Susan Dess opined:

The discussion herein assumes that the insurer does not know that the automobile collision repair facility has waived the insured's deductible. This analysis also assumes that prior to the repair work being performed, the insurer and the automobile collision repair facility agreed to the price that the insurer would pay the automobile collision repair facility for such work. Thus, if an individual was insured under a physical damage insurance policy having a $200 deductible, and the insurer and the facility agree that a certain repair required by the insured costs $1,000, the insurer should reimburse the insured $800.

But if the automobile collision repair facility were to waive the insured’s $200 deductible, the facility’s actual fee would only be $800, the amount of money actually paid by the insured. Since the insurer is only obligated to pay after the first $200, it should only reimburse the insured $600. Thus, if the automobile collision repair facility were to submit a bill for the full $1,000, when in fact its fee was only $800, its actions could be found to constitute insurance fraud. See OGC opinion June 7, 2007. However, if the insurer were aware that the automobile collision repair facility waived the deducible amount, then that might alter the conclusion about insurance fraud. See OGC opinions February 6, 2001 and April 4, 2003.

The crux seems to be the insurer's knowledge. If the insurer does not know that the facility is waiving the insured's deductible, and the facility submits a bill for the full amount, "its actions could be found to constitute insurance fraud."

Question #2: Are there any circumstances under which a plan to waive or reduce a deductible by an automobile collision repair facility would be permissible under New York law?

Answer: Yes. For example, a plan to waive or reduce the deductible may be permissible if the automobile collision repair facility reports its waiver of the deductible to the insurer, and/or the insurer is aware that the deductible has been waived.

Again, the crux seems to be the extent of the insurer's knowledge or awareness of the deductible waiver. I suppose if the insurer is aware of such a waiver and pays the full amount (which this opinion indicates it is not olbigated to do), there is no insurance fraud because there was no misstatement or concealment of material facts under Insurance Law § 176.05.

Five months later, the same inquirer was back with another question to the OGC:

What Constitutes a Rebate by an Automobile Collision Repair Facility? (March 26, 2008)

Question Posed: After automobile repair work is finished, does an automobile collision repair facility’s payment to the insured of all or part of the insured's deductible constitute an unlawful "rebate" in violation of New York Insurance Law?

Answer: Based upon the facts presented, such a payment would not be a rebate within the meaning of Insurance Law § 2324 because: (1) there is no apparent relationship between the automotive repair shop and any insurance company; and (2) the automotive repair shop is neither a licensee under the Insurance Law, nor acting on the part of a licensee.

[Did the inquirer, who "works for a law firm" (perhaps representing the automobile collision repair facility?), not like the OGC's October 2007 answers? Was the thought, "okay, we won't call it a waiver, we'll call it a rebate"?]

Insurance Law § 2324(a) addresses impermissible rebates in connection with property and casualty insurance in New York. Basically it provides that insurers, agents and brokers and their representatives may not pay any rebate in the premium stated on the policy or give away any trinkets exceeding $15 in value. The statute is quoted in the opinion letter.

OGC Senior Attorney Susan Dess opined:

There is nothing in the facts before the Department to suggest that the insurer knows that the automobile collision repair facility has waived the insured's deductible, or is in any way a party to the arrangement. Hence, Insurance Law § 2324 is not implicated, because of the lack of any relationship between the automobile collision repair facility and any particular insurer - an essential element of Section 2324. Indeed, the automobile collision repair facility entices any and all automobile owners to use its services, irrespective of the insurance that the automobile owner utilizes. Nor is the automotive repair shop a licensee, nor acting on the part of a licensee.

In the hypothetical included in the inquirer’s request for the present opinion, which was similar to the hypothetical published in the opinion issued on October 11, 2007, the inquirer states: “With a rebate program, it is highly improbable that an insurer would be aware that a rebate will be provided to an insured out of the amount it pays to the repair facility.” If the inquirer means that, with this particular program, it is highly improbable that the insurer knows that a rebate will be provided to an insured, then it only highlights the absence of a relationship between the insurer and the facility. However, please be advised that, here for the reasons stated in the October 11, 2007 opinion, the failure to inform an insurer of the actual fee may, in certain cases, constitute insurance fraud.

"Rebates" by automobile collision repair facilites are not illegal under Insurance Law § 2324 unless the facility is acting as the insurer's representative. Such facilities are not "licensees" under the Insurance Law. This opinion letter does not, however, alter the OGC's October 2007 opinion. Regardless of what they're called, waivers or rebates not reported to the insurer that pays the repair bill may constitute insurance fraud.