There have been more than 30 cases involving diminished value (DV) in the United States in the past several years. However, last year's case before the Georgia Supreme Court was the first to be decided against an insurance company rather than settled or dismissed. In the class action suit Mabry v. State Farm, State Farm was ordered to pay $250 million in DV claims to its auto insurance policy holders. According to the settlement, "Diminished value is any difference in the value of a vehicle prior to an accident and properly repaired."

Therein lies the crux of the problem: No standards exist for a proper quality repair. Due to the lack of clarity, some direct repair shops worry that insurance claims may come back on them. Until uniform standards exist, the best protection shop owners have is to make sure their work is the best it can possibly be.

Carroll Proctor, owner of A.C. Proctor's Paint & Body Shop in Augusta, Ga., and Mike West, owner of Southtowne Auto Rebuild Inc., in Tukwila, Wash., are two men tackling this problem head-on. Proctor's business has been directly affected by the Mabry ruling. West has served as an expert witness for insurance companies on a number of cases. He's currently providing testimony in a DV case in Washington. Inherent DV is at issue, just as it was in the Georgia lawsuit.

What is inherent DV? Consider this example: A consumer walks onto a used car lot and sees two identical cars. He is told one has been in an accident and one has not. That person would likely not be willing to pay as much for the previously damaged car, even though it appeared to be the same. That difference is inherent DV.

There are two other types of DV. Insurance-related DV arises when an insurance company dictates a repair process that calls for some sort of concession, like the use of inferior parts. Repair-related DV is the type shop owners can impact by doing the best repair possible.

West contends that in the current DV case in Washington and in most others, the problem goes back to repair-related DV.

"Their lawyers are trying to say that no car can be repaired so well that it won't incur diminished value. I said that it can be repaired to a condition as good as or better than it was," he said. "Our contention is that there is no such thing as inherent DV. All DV is either insurance- or repair-related."

Some industry professionals disagree with this position. They insist that inherent DV is an important factor and one that cannot be changed because it has to do with perceived faults that cannot be altered.

"After 38 years as a repairman and looking at my own work doing repairs on the same car, I just don't believe that something that is made by a machine can't be duplicated by a human being who has much more time and thinking ability to fit all the parts on a car and fit them more perfectly," said West. "Can that process get screwed up? Of course, but a good repairman can always return the car to a condition as good as or better than it was originally. Say we repair your car and give you a lifetime guarantee on the work we did. You didn't have that before. So in fact, you're better than you were, so where is the inherent diminished value in that?"

In West's opinion, the repair issues that have resulted in DV are quality issues such as the use of inferior parts or a bad paint job. How can those issues be avoided?

"Shops should always do the best job they can," said West. "Document everything they've done to the car. Put that on the work order and the final bill. Take pictures to show you took apart the blend panel and then blended it, etc., then repair it in the best interest of your customer. Putting on inferior parts and doing an incomplete job will only expose you to liability. You'll be involving the insurance company as well, and if there's ever a problem, they're going to turn and point to you as the expert, so in all cases, you hold the ultimate liability for what is done."

Proctor agreed that documentation is the most important measure shops can take to protect themselves from liability. He has also instituted a release form and carries out an even tougher internal reinspection than he used to. He advises other shops, "Do the best job you can do, document everything you do and don't do, and educate your people. If you don't have trained people, you can't do quality work."

Proctor keeps his technicians aware of DV and the importance of quality repair in weekly and monthly staff meetings.

"We tell our guys we have to be on our p's and q's and make sure we're doing everything right and documenting and taking photos," he said. "Some insurance companies don't want to do certain procedures, but we have to point out our potential for liability if we don't follow these procedures."

Proctor and West both advocate the use of release forms as a crucial method of self-protection.

"We have some forms here that we ask the insurance company to sign if they want us to do something that isn't recommended. You pull that out and use that as a negotiating tool. Point out to them what the industry market mood is in regard to diminished value," West said. "If need be, you're going to have to call your customer and involve them. I don't like to call them, but it's better than putting your own neck on the line."

Proctor said his form is also useful for detecting suspicious customers.

"The form is to document that I've asked for a procedure or a part replacement. We document what we did and what the insurance company won't pay for. We ask the company to sign that they denied it. I've yet to get an insurance company to sign it. I've probably only used it a couple of times. We then send the form via registered mail to the company to document that they have seen the form," Proctor said. "Then we call the customer and tell them what needs to happen and that the insurance company won't pay for it, so that they will be aware of it. They can call the insurance company and complain, pay for the repair themselves, or sign that they are OK with what the insurance company will cover."

This last step is important. If the customer refuses to verify they were informed, Proctor won't repair the car.

"All they're doing is acknowledging that I told them about it. If they won't sign, it tells me that they're going to try and pull something over on me at a later date," he said.

Despite the increasing need for such protective measures, Proctor prefers to focus on the repair when talking to customers.

"If they ask about diminished value, we normally just hand them a copy of the diminished value formula (determined by the Georgia Supreme Court) and I don't really get into it with them," he said. "I try to stay out of the legal side of it as much as possible and just let them deal with their insurance carrier about the diminished value claim. If not, I'll have someone wanting to sue me for practicing law without a license."

Proctor said insurer attitudes in Georgia have changed in the wake of the court decision, but not always for the better. Some insurance companies believe they have to repair the car better now, while other companies wonder why they should bother - they're having to pay diminished value claims anyway.

"State Farm has far and away the most progressive attitude about fixing the car right," said Proctor. "Their goal is to return the vehicle to pre-loss condition relative to safety, function and appearance."

West emphasizes the need to push for higher standards from insurance companies.

"A lot of people have a direct repair program they're involved in and they've got big debt and they're afraid of alienating their insurance company at the expense of their customer," he said. "You've got to say to (the insurance company) that you're looking out for their best interest here. Maybe that's going to make them mad and make them go down the street to someone else, but is it worth exposing yourself to harm or ruining your reputation to keep them? I don't think so."

One great fear with the advent of DV claims is that insurers will total more cars, leaving fewer for collision shops to repair. Proctor said he hasn't noticed much change in the past year since the Mabry case, though.

"It hasn't affected me dramatically, but the total loss thresholds are much lower now. There are some borderline cars that are now getting totaled that probably would have gotten fixed before," he said. "But in all honesty, if the car was that close to being totaled, it probably should have anyway. When you get over 50 percent of the cost of the car in repairs, you have to start asking if the diminished value claim is going to total the car."

All in all, Proctor said, work hasn't changed too much since the Mabry case. His goals continue to be making a profit, fixing the car and keeping the customer happy. But, he said, "I second-guess myself sometimes. We have always strived to do the highest-quality repair we can. I wonder now if my best is good enough. Is there anything I haven't thought of that I can do better? After (the ASA Collision Division's) recent trip to State Farm headquarters, the answer to that question is yeah, there is. State Farm made us aware of some little things that I never thought about before."

And, he said, perhaps some good will come from these lawsuits.

"I hope in the long run it leads to a higher quality of repair and that shops are being paid for that repair," Proctor said. "The public will get what they should have been getting all along, and shops will get paid for that higher quality. If more cars get totaled, body shop owners by our nature can adapt to changing situations. We put out fires every day, and I think we can adapt to more cars getting totaled. I think we're going to have to adapt to it."

West speculated that no matter what changes come, it will mean improvements for shops, insurers and customers alike.

"Generally speaking, it's going to be good for our industry because it's going to separate those who can do a good job from those who can't," said West. "Insurance companies are going to want to align themselves with those who can do a good job. Those who can't will learn how or they'll fade away."

Alexis Burt is a communications assistant for the Automotive Service Association (ASA). She can be reached at alexisb@asashop.org.

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