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June 2010 Issue

Where the Buck Stops

A unique panel offers insights into what responsibilities and liabilities shop owners face - and what they need to do to protect themselves and their assets.

Key steps shop owners should take to protect themselves from some of the risks related to shop ownership and collision repair work were the focus of a recent industry panel discussion.

Aaron Schulenburg, executive director of the Society of Collision Repair Specialists (SCRS), said the association organized the “Protecting Your Assets” forum, held in Atlanta in April, to help shops understand and address the liability involved with running a shop. He said one key message shop owners must understand is that a defense of outside influence over repair decisions will not negate liability for poor-quality repairs.

“I hear it all the time: The insurance company made me do it or told me to do it, or that is all they paid me to do,” Schulenburg said as he opened the session. “At the end of the day, your name is on that sign. Your name is on the authorization form that the customer signs. Ultimately, your repair order showing what you performed is what will be scrutinized. The decisions are yours to make.”

Audie Swedeen of VeriFacts Automotive, which provides collision repair technician coaching, vehicle re-inspection and dispute resolution services in 14 states, shared some examples of poor-quality repairs his company has seen – sometimes in shops where company owners and managers presume everything is being done right.

Swedeen said most such repairs are clearly unintentional, caused by a lack of knowledge or training. He cited the repair of a Toyota Camry where a technician was too aggressive in grinding spot welds on the quarter-panel, which if done properly according to manufacturer recommendations can be a proper method of removing the welds.

“In this case, the wrong [grinding] disk and process were used because the tech inadvertently ground into the parent metal [host panel], the inner structure,” Swedeen said. “When he did that, he unknowingly ground off the airbag timing marks.”

The car was involved in another accident the day it left the shop, Swedeen said, and the curtain airbag did not deploy and a passenger in the vehicle was severely injured.

“These types of things are real,” Swedeen said. “If you don’t think it’s happening, you need to walk out into your shop every once in a while and make sure the quality control manager knows what he’s looking for.”

So in addition to a good quality control process used throughout the repair process, and ensuring technicians are well-trained and supplied with access to automaker repair guidelines, what else should shop owners do to protect themselves?

Panelist Paul Hulsebusch, an insurance agent with Sonora Insurance in Boerne, Texas, whose company specializes in commercial insurance for businesses, said the first key is setting up the right corporate structure for the company.

“We see a lot of very successful businesses, people who have spent 25 years building a great organization and who work very hard, but something bad happens,” Hulsebusch said. “Maybe even something outside their control. We see those business get into tremendous trouble because their corporate structure wasn’t set up right.”

A corporate attorney can help you determine what structure – a corporation or a limited liability company, for example – will best meet your needs, panelist John Parese, a Connecticut attorney, said. This structure can prevent someone who is bringing a lawsuit against you from going after your personal assets.

“That’s what corporate structure is for, so in the event you do something wrong or make a mistake, or one of your employees makes a mistake, you don’t lose your home,” Parese said. “If you haven’t done that yet, make that your first order of business.”

Having that structure – and by paying your workers as employees rather than as independent contractors – will also ensure they are protected under your garagekeepers’ liability insurance in the event they are personally named in a suit about work they have done for your shop, Hulsebusch said. Panelist Erica Eversman, an Ohio attorney, said that’s important because an employee named in a suit may otherwise be inclined to offer the suing party any information they need in order to reduce their own liability.

Similarly, Hulsebusch and Eversman agreed, it is critical for a shop to have agreements with any company doing sublet work for the shop, showing that the subcontractor carries its own insurance and indemnifies the shop.

“Because you are liable for the quality of the repair work that is done by your subcontractor,” Eversman said, saying this is true even if you use a subcontractor recommended by an insurer.

“A great subcontractor agreement that has been reviewed by somebody who understands those coverage nuances can prove to be invaluable,” Hulsebusch concurred. He said in some states business insurers have denied coverage under general liability policies when such agreements don’t exist or are unclear.

The panel was also asked about the clause in most direct repair contracts that requires the shop to indemnify the insurer. Hulsebusch said although this is the insurer’s way to “make you the responsible party and trying to get themselves out of it,” it seems likely the insurer will still be brought into any litigation. But he urged shops to check they have adequate defense cost coverage on their business insurance.

Eversman said she recommends that before shops sign a direct repair agreement that they share it with their business insurer.

“Ask them: Can I sign this? Will I have coverage? Is this acceptable to you?” Eversman said. “They need to know what’s in all these things. They may know but they’re not being officially put on notice by their insureds.”

Eversman also reiterated that the collision repairer will ultimately be held responsible for any failure to produce a complete and quality repair that returns the vehicle to a safe condition – despite what any insurer asks of the shop. “What the insurer wants is absolutely irrelevant, unless the insurer is working (on a vehicle) under its own policy and is electing the repair option, is taking physical control of the car and is responsible for getting the repair,” she said. “Then and only then is what the insurance company wants in terms of repair of any import.”

“Our industry is responsible for the results of the services we offer to the customer, and we as professional collision repairers must be responsible for ensuring that we make the proper decisions to protect the consumer, their property and our businesses,” Schulenburg said following the session. “If appropriate care is not taken, the burden rests squarely on your shoulders.”   o

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