Update: On December 29, 2015 the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

On February 24, 2015, the Supreme Court of Ohio heard oral argument in the case of Jerry Dillon, et al. v. Farmers Insurance of Columbus, Inc., 2014-0451. At issue in this case is whether R.C. 1345.81 of the Consumer Sales Practices Act (“CSPA”) can be applied to insurers of motor vehicles.

Case Background

Jerry and Nancy Dillon’s Mercury Milan collided with a deer. Jerry Dillon had the car towed to Mission Auto Connection repair shop, with whom he had done business before, and filed a claim with Farmers Insurance of Columbus. Farmers assigned Mark Babb as the claims representative to inspect the car for damages and prepare a written estimate.

At issue in the case is the proposed use of several aftermarket or Non-Original Equipment Manufactured (“non-OEM”) parts. Aftermarket, or non-OEM parts, are spare parts made by companies other than the car’s original manufacturer.  Such parts are made without the permission of the original manufacturer and the standard of quality among aftermarket parts varies greatly.

Babb claims that before he inspected the car, he verbally explained the claims process to Jerry Dillon, but that Dillon never told him he only wanted OEM parts in the car. But after Babb had inspected the car at Mission Auto, Dillon informed him he did not want aftermarket parts used, and directed the repair shop to use only OEM parts. Babb never got the Dillons’ signature on the written repair estimate. Farmers refused to pay for the difference between the original estimate and repairs with OEM parts.

Jerry and Nancy Dillon filed a lawsuit against Farmers alleging the insurance company violated R.C. 1345.81, a section of the Consumer Sales Practices Act which requires insurers to obtain written consent from a policyholder for the use of non-OEM parts in a written estimate. The trial court awarded treble damages and legal fees and expenses totaling $30,613.66, which included $1,521.07 for actual damages and an additional $4,563.21 treble damages.

In a unanimous decision, the Fifth District Court of Appeals upheld the trial court’s decision, and confirmed the award of treble damages and legal fees and expenses. But the court overturned the award of $1,521.07 for actual damages, finding the Dillons could not be awarded both treble damages and actual damages.

Read the oral argument preview of the case here.

Key Statutes

R.C. 1345.01(A) (Defines a consumer transaction as a “ sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, a franchise, or an intangible, to an individual for purposes that are primarily personal, family, or household, or solicitation to supply any of these things.” Specifically excludes transactions with insurance companies engaged in the business of insurance.)

R.C. 1345.01 (C) (A supplier is defined as a “seller, lessor, assignor, franchisor, or other person engaged in the business of effecting or soliciting consumer transactions, whether or not the person deals directly with the consumer.”)

R.C. 1345.02 (No supplier shall commit an unfair or deceptive act or practice in connection with a consumer transaction. Such an unfair or deceptive act or practice by a supplier violates this section…)

R.C. 1345.81 (B) (Requires insurers to disclose the use of non-OEM parts used to repair a motor vehicle. If the vehicle owner requests a written estimate, the use of non-OEM parts must be included in the estimate and the owner must sign the estimate. If the owner requests an oral estimate, the insurer must notify the owner about the use of non-OEM parts at the time the estimate is given and must include such notice in the final invoice for the repair.)

(E) (Any violation of this section in connection with a consumer transaction as defined in section 1345.01 of the Revised Code is an unfair and deceptive act or practice.)

At Oral Argument

Farmers’ Argument

This case is not about public policy or the legality of the use of after-market parts in vehicle repairs. Those concerns have already been addressed by the legislature.  This case is not about safety issues; it is about unambiguous insurance policy requirements. The court of appeals in this case wrongly took one sentence in R.C. 1345.81 out of context, and wrongly imposed a signature requirement in this case where there was none.

The estimate in this case was conveyed to Mr. Dillon both orally and in writing. In the verbal conversation, Mr. Babb, the claims representative, advised Mr. Dillon that the estimate was based on the use of after-market parts, as the policy permits. In that conversation Dillon told Babb he would not go along with the use of non-OEM parts, and would insist on OEM parts. He is allowed to do that, but the insurer only has to pay what the policy requires.  By contract, Farmers only had to pay for the repairs using aftermarket parts. Any difference in cost would be on the Dillons.

After that, Babb mailed the estimate to the Dillons’ home, but it was never signed. But the signature requirement in the statute does not apply here.  That provision requires both receipt and approval, but Mr. Dillon had told the claims representative before the estimate was even issued that he would not approve it. Because Mr. Dillon didn’t agree with the estimate, there was no way he was going to sign it, and there was no way to force him and his wife to sign.

The purpose of this statute is full disclosure to the consumer, and that was fully met here. Full disclosure was made orally to Mr. Dillon here, who made his disagreement clear. Farmers met both the spirit and the letter of the statute. By the time the Dillons received the written estimate, Mr. Dillon had already decided to proceed with OEM parts, and the requisite disclosure had been fully made.

Additionally, R.C. 1345.81 does not apply here because there was no consumer transaction in the case, and the insurance company is not a supplier, because it is not providing the service here. The process of providing an estimate for the repair of an automobile between an insurance company and its insured is not a consumer transaction. The insurance company does not control any aspect of the repairs. Nor does it require its insureds to use a particular body shop or to use certain parts. The CSPA specifically excludes insurers. Chapter 39 specifically governs and regulates insurers.  There are remedies under Chapter 39 if an insurance company doesn’t do what it is supposed to do. Ohio also recognizes a common law claim for diminution in value. No such claim was filed here by the consumer. Or, the consumer can choose not to repair the car at all, and pocket the insurance proceeds.

The CSPA does not apply here. If the court finds that it does, Farmers met all of its required obligations under the statute.

Dillons’ Argument

The Dillons shared time with counsel for amicus Alliance of Automobile Manufacturers.  This turned out not to be a good idea, because amicus counsel really wanted to talk about the safety issues involved with the use of non-OEM parts, but the court wasn’t interested in hearing that. (except Justice O’Donnell, who said he was, but by then amicus counsel clearly just wanted to sit down.)

Alliance of Automobile Manufacturers’ Argument

While the safety concerns are not directly before the court, these concerns underscore the importance of the disclosure requirements in the statute. Amicus counsel argued that the Dillons only found out about the use of aftermarket parts from the body shop, not from the adjuster. The written estimate was provided to the body shop, which communicated its contents to the Dillons.  The Dillons never received the written estimate from anyone at Farmers.

Dillons’ Argument

This case is about the plain language of 1345.81—the important phrase is at subsection (E) which says the section applies to insurers when acting in connection with a consumer transaction.  This section does not require that an insurance company itself be engaging in a consumer transaction, only that the company is acting in connection with a consumer transaction.  There clearly is a consumer transaction here between the car owner insured and the repair shop, in which the insurance company involves itself. The insurance company acts in connection with this consumer transaction by the written estimate requirement, which thrusts it into the consumer transaction. What Farmers did in this case was go around Mr. Dillon.  The written estimate went to the repair shop only. The statute requires both receipt and approval from the consumer. That did not happen here. Substantial compliance with this statute is not good enough.

Additionally, Farmers was acting as a supplier here, by dictating how much it would pay and what parts had to be used. This statute is definitely a disclosure statute.  One of the things that was not disclosed—either verbally or in writing—was that aftermarket parts are not going to be warranteed by the manufacturer of the consumer’s car, but by the manufacturer of the parts.

What Was On Their Minds

The Mechanics of the Statute: The Disclosure and Signature Requirements

Is there a signature requirement here, asked Justice O’Donnell? When the victim of an auto accident receives an estimate that he or she doesn’t agree with, what does that person do? Is there some recourse under the statute? Since Mr. Dillon didn’t agree with the estimate, he wasn’t going to sign it, was he?

Isn’t this a bit like the state trooper giving you a ticket and asking you to sign the ticket, saying you don’t have to agree with it but you do have to sign it, asked Justice O’Neill? Is the insurance company arguing it wasn’t necessary to sign the estimate? The estimate was tendered, though?

The Dillons never signed, but indicated their disagreement, asked Chief Justice O’Connor? Wasn’t there both an oral discussion, in which the consumer was told aftermarket parts would be used in the repair,  and then there was the proffer of the written estimate, with the signature line for the consumers? Who took the estimate to the body shop in this case?  Since there was a verbal agreement, was there even any need for a written one? Does the failure to comply with one trigger the other? Does the statute require that the insurance company send the written estimate to its insured, or just that the customer receives it, she asked, in a key question of the day. Can’t the customer just get the information from the body shop? Doesn’t that happen all the time? Or does the statute require the insurance company to hand the document directly to the insured? Why is it not sufficient or why is it contrary to the statute to give the estimate to the body shop to go over with the insured?

Did the Dillons request a written estimate in this matter, asked Justice Lanzinger? Did it contain the boilerplate required under the statute? Does that affect which section of R.C. 1345.81 applies? Who gives the estimate, the insurance company or the repair company? Does the statute require the insurance company to ask if its insured wants a written estimate? Isn’t the issue here whether the customer wanted the written estimate and whether there had to be a signature on that estimate?  Who tells the customer that he or she has the choice of a written or an oral estimate, and how? Was that done here?

Subsection (E) of the Statute: Acting in Connection with a Consumer Transaction

Do we need to look at 1345.81 (E) and make a determination as to whether or not Farmers Insurance was acting in connection with a consumer transaction between the repair shop and the customer, asked Justice O’Donnell?

When would that section not apply, asked Chief Justice O’Connor, commenting that every time there is a wreck in which the car is repaired, there will be interaction among the insured, the repair shop, and the insurance company.

Doesn’t that subsection say “in connection with a consumer transaction as defined in 1345.01,” which specifically excludes insurers, noted Justice French, asking the Dillons’ lawyer how he would get around that?  Later, she asked insurance counsel why was this not “in connection with” a consumer transaction between the consumer and the repair shop?

Insurance Policy Requirements

The insurance pays up to a certain portion, and if a customer insists on OEM parts, then the customer pays the difference, is that the theory, asked Chief Justice O’Connor? (Answer: yes) Could the insurer have agreed to OEM parts?

Consumer Transactions

Isn’t the larger question here whether or not the resolution of an auto repair estimate is a consumer transaction, asked Justice O’Donnell in another key question of the day. Is there a tangential issue as to whether or not the carrier is a supplier? Or the body shop?  Or if there is a supplier in this matter?

What is the consumer transaction here, asked Chief Justice O’Connor? Was Farmers saying that the only role it had in this consumer transaction between Dillon and the body repair ship was “this is our bottom line and here is what we are going to pay for under the policy” (answer: yes)

Was the court of appeals correct that this is a consumer transaction between the insurance company and its insured, asked Justice O’Neill?

Remedies

Is there a diminution in value claim available here, asked Justice O’Donnell? Is that a statutory remedy?

Aftermarket Parts

Is it disputed that the customer wanted only OEM parts, asked Chief Justice O’Connor? Or that the insurance company wouldn’t pay for those? (answer to both: no) Was it mandated that the non-OEM parts had to come from a particular distributor or a particular warehouse? Does the insurance company keep a warehouse of parts? Do the parts arrive at the auto repair shop in a brown paper bag with no return address? Shouldn’t this issue be addressed upfront, when an insured buys a policy? Shouldn’t the consumer then only buy and pay for a policy that will use only OEM-parts in any repair? Later, she asked insurance counsel if in fact Farmers wasn’t directing the repair shop in what parts to use.

Can’t the insured use all OEM parts, but the insurance company tells them they have to pay for those, asked Justice O’Neill?

How It Looks From The Bleachers

To Professor Bettman

Like a win for Farmers.The court is likely to find that the Dillons were never deceived about what they were getting or what Farmers would pay for, which is the point of the consumer protection statute at issue.

Even after many questions trying to elicit the exact sequence of events—when, whether and from whom the Dillons received the written repair estimate in this case, as Farmers’ counsel admitted, none of the depositions gave a very good blow-by-blow in the case.  According to Farmers’ lawyer—and he gave a specific deposition page reference –Dillon did admit in his deposition that he received a written estimate, but no one clearly established when or from whom.  Still, the fact is that the purpose of the section of the Consumer Sales Practices Act at issue here is full disclosure to the consumer about what he or she is getting.  Jerry Dillon knew that Farmers would only pay for aftermarket parts in the repair of his car; Farmers knew that Dillon didn’t want those. In essence, Farmers was arguing that the signature requirement here was a vain act. I think a majority, if not all, the justices will likely buy that argument.

Chief Justice O’Connor seemed the most unsympathetic to the arguments of the consumers in the case, at times going into relentless cross-examination mode during their argument.  She was particularly tough on amicus counsel. She seemed to think what happened here was very routine-she said, “ok so the auto body repair shop is going to say to the customer, in my experience your insurance carrier is only going to authorize aftermarket parts—doesn’t that happen all the time? And then the auto repair company had estimate of what Farmers told Mission it would pay for, and that was conveyed to Dillon thru Mission.”

Some of the justices—the Chief in particular, and probably Justice French–may not even find there was a consumer transaction here. As Farmers’ counsel put it, “that is the threshold question, and if the answer is no, the conversation ends there.” As evidenced in the recent decision  in Anderson v. Barclay’s Capital Real Estate, Inc., 2013-Ohio-1933, in which the court refused to apply the CSPA to mortgage servicers, the court hasn’t seemed inclined to give very expansive readings to those terms, especially when applied to businesses regulated elsewhere.

Still, insurance companies who write these estimates aren’t as dissociated from the entire process as insurance counsel was arguing.  The best argument for the application of the CSPA was that the insurance company was acting in connection with a consumer transaction between the insured and the body shop, pursuant to subsection (E) of the statute. But as Justice French pointed out, that subsection refers back to the definition of consumer transaction, which excludes transactions with insurance companies—but only in that role.

To Student Contributor Michael Elliott

I’m predicting a win for the insurance company on this one. There are two important issues here: whether the CSPA applies and, if so, whether the insurance company did what it needed to do to comply with the act and ensure that the Dillons were well informed. The court didn’t seem to be very sympathetic towards Mr. Dillon, and it seemed clear that the jsutices believed Dillon was made aware of what repairs were going to be made on his car, despite what his counsel and counsel for the amicus claimed.

There was a bit of an issue here as to just how informed Dillon was about the use of OEM parts. Both the counsel for amicus Alliance of Automobile Manufacturers and the Dillons’ counsel argued that Mr. Dillon never personally received a written estimate while counsel for Farmers was able to point out in Mr. Dillon’s deposition that he did in fact receive a written estimate and simply refused to sign it.  Farmers’ counsel also claims that an oral estimate was given. What the record shows here will be important, and I think Farmers has the edge.

Counsel for Farmers neglected to address the other important issue, whether the CSPA applies to automobile insurance repair, until Justice O’Donnell brought it up around the 13-minute mark of his argument. I think this was a mistake, but I don’t think it will end up hurting Farmers at all. The justices didn’t seem overly concerned about this issue, and spent most of the argument time asking questions about the signature requirement. On the issue of whether the CSPA applies, I think the justices will hold that it does in this situation; the statute clearly addresses insurers “in connection with” a consumer transaction. Counsel for the Dillons did a good job of underlining what brought the insurance company under this law in the first place: submitting its own written estimate to the repair facility rather than relying on the repair shop’s estimate, as was common practice decades ago. In any case, the insurance company will win this case by asserting that it did all it could to comply, and that it was Mr. Dillon who didn’t play ball. That, I think, will ultimately make the difference.