Assigned to FIR FOR COMMITTEE

ARIZONA STATE SENATE

Phoenix, Arizona

FACT SHEET FOR H.B. 2649
motor vehicle repairs; disclosure; prohibitions

Purpose

Requires insurers to repair original equipment manufactured motor vehicles that are 18 months or newer with original equipment manufacturer (OEM) parts. Imposes disclosure requirements and restrictions on insurers regarding motor vehicle repair.

Background

American drivers annually are involved in an estimated 15 million vehicle accidents with an approximate retail cost of replacement auto parts of $3 billion per year paid out by individual consumers and insurance companies. Consumers and insurers face a choice of high-priced original equipment manufactured (OEM) parts, produced by the auto manufacturing industry, or low-cost "aftermarket" generic parts of sometimes questionable quality, produced by independent manufacturers.

Opponents of the bill raise several objections. Insurers argue that mandating OEM parts would have the effect of wiping out the auto repair networks that allow them to keep auto repair costs low. Further, they object to the claim that aftermarket parts are inferior or unreliable because the number of Certified Automotive Parts Association (CAPA)-certified crash parts, which undergo rigorous testing, has increased to more than 2,000. They maintain that the added market competition has reduced the costs of OEM parts by sometimes more than one-third of their retail price, reducing the bottom line of their suppliers and the repair shops who use the parts. Additionally, the Alliance of American Insurers points out that faulty OEM parts led GM and Ford to recall 1.18 million hoods over the last decade.

Proponents of this legislation claim consumers often are ignorant of the replacement parts repair shops are using and that in using such parts insurers fail to restore a vehicle to its pre-loss condition. They argue that aftermarket parts are often inferior and that insurers encourage their use because they are less expensive.

Currently 38 states have some form of disclosure legislation requiring that consumers be informed when an aftermarket part is being used in motor vehicle repair.

Provisions

1. Requires insurers to provide OEM parts coverage for an original equipment manufactured vehicle to the insured or claimant for repair or damage to a vehicle within 18 months of the initial vehicle purchase.

FACT SHEET H.B. 2649 Page

2. Permits insurers who meet the following conditions to provide nonoriginal equipment manufacturer parts coverage:

Vehicle is damaged after 18 months of the initial purchase.

Insurer, employee or agent of insurer, solicitor or adjuster (insurer) discloses in writing to the insured or claimant the condition of parts or products to be used to repair vehicle.

Insurer discloses in writing the cost of the products to be used to repair the vehicle and allows the insured or claimant to receive OEM parts by paying for the difference between the cost of the nonoriginal equipment manufacturer ("aftermarket") part and the OEM part.

The insured or claimant acknowledges, by signature, receipt and understanding of the above terms.

3. Prohibits an insurer, in connection with the repair of damage to a motor vehicle, from:

Soliciting or accepting a referral fee or gratuity in exchange for referring the insured or claimant to a repair person or facility.

Stating or suggesting that if the insured or claimant uses a certain repair person or facility the result will be a lower quality repair.

Requiring an insured or claimant to travel an unreasonable distance to have a vehicle repaired.

4. Prohibits a contract or referral agreement between an insurer and a repair person or facility from resulting in:

Substandard repairs or parts or compromise of the structural integrity and safety of the vehicle.

A reduction in coverage under the insured's policy.

5. Prohibits an insurer from prohibiting a repair person or facility from providing an insured or claimant with information regarding auto repair parts and the amounts charged to insurers for related parts and labor.

6. Allows an insured, claimant or repair person or facility to submit a written complaint to the Director of the Department of Insurance (Director) for any alleged violations of the above requirements/prohibitions.

7. Allows the Director to adopt rules to implement this section.

8. Includes failure to comply with this section on motor vehicle damage repairs, disclosure, prohibitions and complaints, as a violation subject to a "cease and desist order" and/or a civil penalty.

9. Makes a technical change.

10. Contains a general effective date.

House Action

BI 2/16/99 DPA 3-2-1-0-0

3rd Read 3/15/99 31-22-7-0

Prepared by Senate Staff

March 22, 1999

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