Texas Warns Insurers on Auto Claims

August 10, 2010

Texas Insurance Commissioner Mike Geeslin has released a bulletin reminding auto insurance providers that it is against state law to “directly or indirectly limit the insurer’s coverage under a policy covering damage to a motor vehicle.”

Specifically, the Texas Insurance Code states that insurers may not specify “the brand, type, kind, age, vendor, supplier, or condition of parts or products that may be used to repair the vehicle;” or limit “the beneficiary of the policy from selecting a repair person or facility to repair damage to the vehicle.”

The Texas Department of Insurance is concerned about information it has received indicating “insurers may be providing claimants with additional notice regarding motor vehicle repairs that may be in conflict with” Texas statutes.

Subchapter G, Chapter 1952 of the Texas Insurance Code (TIC) “specifies that an insurer, an employee or agent of an insurer, an insurance adjuster, or an entity that employs an insurance adjuster may not state or suggest, either orally or in writing, to a beneficiary that the beneficiary must use a specific repair person or facility or a repair person or facility identified on a preferred list compiled by an insurer for the damage repair or parts replacement to be covered by the policy”, according to the bulletin.

Additionally, Section 5.501 of the Texas Administrative Code (TAC) “requires an insurer to provide a notice to the insured or third-party claimant who makes a claim regarding damage to a vehicle. The required notice specifies that a claimant has the right to select where a motor vehicle is repaired and the parts used for repairs. The notice also specifies that an insurer is not required to pay more than a reasonable amount for such repairs and parts.”

The commissioner’s bulletin said that providing notice to a claimant, either verbally or in writing, that implies the claimant may be responsible for paying for certain repair costs if the claimant chooses a repair facility that is not on the insurer’s list of preferred repair facilities, may be in conflict with the TIC and TAC because it would indirectly limit the coverage under the policy by discouraging the claimant from selecting a repair facility that is not on the list.

The department is also concerned that setting reimbursement rates artificially low for specific motor vehicle repairs and parts that are used to make the repairs may lead to substandard repairs, which may also impact the warranty on a vehicle.

The majority of personal automobile insurance policies require insurers to pay the amount necessary to repair or replace the property with other(s) of like kind and quality. The department asserts that it is an unfair claim settlement practice for insurers to pay claimants an amount for the repair of the vehicle, including parts, that is not a reasonable amount for repairing or replacing the property with other of like kind and quality or is not sufficient enough to make the repairs necessary for the manufacturer to honor the vehicle warranty.

The department noted that it will enforce the rights of claimants to receive the benefits to which they are contractually entitled.

Source: Texas Department of Insurance

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