According to a 1999 study commissioned by the Alliance of American Insurers (AAI), if you were to build a $25,000 vehicle using only Original Equipment Manufacturer (OEM) parts, it would cost you over $100,000. When repairing vehicles damaged in accidents, insurance companies argue that the use of look-alike, aftermarket (non-OEM) generic crash parts significantly contributes to holding down the cost of repairs and helps keep auto insurance premiums low. Insurers claim that without a viable market allowing for the use of non-OEM parts, auto makers would have a monopoly on the replacement part industry with no checks or balances on pricing. They claim it is in the best interests of both insurance companies and their insureds to allow the use of aftermarket parts in the repair of damaged vehicles. However, as a society we must balance cost with the safety and integrity of these “generic” parts. As a result, there is an ongoing debate over the use of such non-OEM parts in repairing damaged vehicles. The laws regarding and regulations overseeing the use of non-OEM parts in repairing damaged vehicles are confusing and inconsistent. It is the goal of the article and the chart to which it links to explain the controversy and shed light on how all 50 states regulate and govern the use of such parts.
What are aftermarket crash parts?
Crash parts, often referred to as cosmetic parts, are sheet metal or plastic parts that are installed on the exterior of a motor vehicle. Crash parts exclude mechanical parts such as batteries, filters, mufflers, shock absorbers, and engine parts (according to a 2001 U.S. General Accounting Office Report). The most commonly cited examples of aftermarket parts are fenders, hoods, doors, and bumper components. “Aftermarket parts” generally mean sheet metal or plastic parts that constitute the exterior of a motor vehicle, including inner and outer panels. A “non-original manufacturer” means a manufacturer other than the original manufacturer of the part.
There are three sources for crash parts used to repair damaged vehicles:
- Original Equipment Manufactured (“OEM”) parts are manufactured by the original auto manufacturer. They are brand new parts made specifically to go with a particular make and model of vehicle by that vehicle’s original manufacturer.
- Non-Original Equipment Manufactured (“Non-OEM”) parts, also known as aftermarket crash parts, are generic parts produced by independent manufacturers who manufacture replacement crash parts and sell them cheaper than the original equipment manufacturer.
- Used, salvaged, reconditioned, or recycled parts are bought from salvage companies and junk yards. They are usually only used in special insurance policies which offer lower premiums in exchange for the right of the insurance company to use the lowest price of crash parts in repairing your vehicle. Junk yard parts are OEM parts, only used.
The debate within the industry and the world of vehicle repairs is over the use of OEM parts vs. non-OEM or junk yard (used) parts. The practice of using parts salvaged from junk yards has received a lot of attention over the last few years. In State of West Virginia v. Liberty Mut. Ins. Co., 2012 WL 10478650 (W.Va. Cir. Ct., Dec. 2012), the West Virginia Attorney General sued Liberty Mutual because it was requiring the use of salvaged crash parts when negotiating the repairs of motor vehicles without the written consent of the vehicle owners. The trial court ordered Boston insurance company Liberty Mutual to stop using parts salvaged from junkyards to fix newer cars. The court found that these actions were in violation of West Virginia’s Automotive Crash Parts Act. Junk parts (sheet metal) often show up at the repair shop full of old bodywork done poorly, paint work needing stripping or even rust and dirt removal. Parts have to be sent back until acceptable parts can be used, which lengthens the time repairs take.
Aftermarket crash parts can further be categorized by whether they have been certified by CAPA (Certified Automotive Part Association). CAPA is a non-profit organization that was established in 1987 to assure the suitability and quality of automotive replace parts. To determine the quality of collision parts, CAPA examines a manufacturer’s plant, equipment, manufacturing processes, and resulting products. If the examined parts are equivalent in appearance, fit, material composition, and mechanical properties to new OEM parts, the aftermarket parts will be CAPA-certified. CAPA creates a presumption that certified non-OEM parts are equal to OEM parts in kind and quality.
Currently, 35 states have statutes or regulations that address a first-party insurer’s obligations with regard to the use of non-OEM aftermarket crash parts used in vehicle repairs. Thirty-one (31) states require a disclosure statement with the repair estimate that addresses the use of non-OEM parts. Twenty (20) states have a requirement that the manufacturer of the non-OEM parts have to be identified. Thirteen (13) states have a requirement that non-OEM parts used have to be of “like kind and quality” as OEM parts. Six (6) states require the consent of the insured before using non-OEM parts.
The disclosure requirement on repair estimates often prescribes specific language which must be contained in the estimate. As an example, Alabama and many other states require the following disclosure to appear in the repair estimate:
THIS ESTIMATE HAS BEEN PREPARED BASED ON THE USE OF AFTERMARKET CRASH PARTS SUPPLIED BY A SOURCE OTHER THAN THE MANUFACTURER OF YOUR MOTOR VEHICLE. THE AFTERMARKET CRASH PARTS USED IN THE PREPARATION OF THIS ESTIMATE ARE WARRANTED BY THE MANUFACTURER OR DISTRIBUTOR OF SUCH PARTS RATHER THAN THE MANUFACTURER OF YOUR VEHICLE.
Arkansas and many other states require the following disclosure to appear in the insurance policy:
IN THE REPAIR OF YOUR COVERED MOTOR VEHICLE UNDER THE PHYSICAL DAMAGE COVERAGE PROVISIONS OF THIS POLICY, WE MAY REQUIRE OR SPECIFY THE USE OF MOTOR VEHICLE PARTS NOT MADE BY THE ORIGINAL MANUFACTURER. THESE PARTS ARE REQUIRED TO BE AT LEAST EQUAL IN TERMS OF FIT, QUALITY, PERFORMANCE, AND WARRANTY TO THE ORIGINAL MANUFACTURER PARTS THEY REPLACE.
History of Non-OEM Replacement Parts
In the 1960s, prior to the introduction of aftermarket parts, OEM’s “marked up” the cost of their replacement parts by as much as 800%. There were no generic look-alike parts available. The only alternative to these expensive parts were salvage parts from other wrecked vehicles. Some of you may remember when vehicle fenders and quarter panels would rust through in less than a year. Sheet metal “stampings” shaped in the same general shape as a fender was sometimes used to repair rusted fenders and quarter panels. For the most part, however, only expensive OEM parts were used. A pricing structure known as “Wholesale Comp” infected the pricing structure, enabling everybody who touched a replacement part to make a good profit. The body shape doing the repairs had a 40% margin, and the dealership selling the part made a healthy profit. The consumer paid $500 for a fender which would cost $75 if made by a non-OEM fabricator.
Over time, American ingenuity resulted in a few enterprising companies making look-alike parts in the Pacific Rim, and selling them for a fraction of the cost of OEM parts. The Wholesale Comp scheme slowly ground to a halt as auto makers could no longer compete if everybody who touched the part had their hand out. In fact, in the early 1970s, many auto repair shops refused to work on Volkswagens because they could only make a 20% mark-up as opposed to 40% for Chrysler or General Motors parts. These early non-OEM parts were of poor quality. Many didn’t fit well, rattled after installation, or were made of thinner, weaker material. Flanges and tabs were in the wrong location and a significant amount of rigging was necessary to install them.
Until the late 1970s, auto repair shops were primarily using OEM parts for repairs. As manufacturing technology became more available and cheaper, independent manufacturers began selling auto replacement parts at a much lower cost, driving down the price of OEM parts down by an average of 30%. At the same time, auto makers undertook a massive public relations and legal campaign against the use of aftermarket parts, claiming they are unsafe and inferior. Referring to the non-OEM parts as “imitation” parts, auto makers struck fear in the hearts of vehicle owners by advising them not to such aftermarket parts. As a result, insureds around the country began to push back against insurance companies because they felt they were being cheated or endangered by the use of non-OEM parts. The auto makers claim that independent studies have documented the lesser quality of non-OEM repair parts. They claim that studies have proven that the OEM replacement parts are designed to meet defined quality, safety, and appearance specifications, and non-OEM parts are not.
The U.S. General Accounting Office (GAO) has documented that there have been seven studies of non-OEM replacement parts, with varying results. One study by Consumer Reports determined that the non-OEM parts were of inferior quality, fit improperly, and rust quicker than OEM parts. Another study by Ford concluded that the non-OEM parts are not of “like kind and quality.” It also says that the after-market parts cause more damage in subsequent collisions if used in place of OEM parts in vehicle repairs, pulling the innocent dealers into the ongoing debate between insurance companies, auto manufacturers, state governments, and consumer advocates. Three other studies, sponsored by the insurance industry and insurance associations determined that non-OEM parts do not influence vehicle safety.
The U.S. collision repair business is a $200 billion industry, which explains the ongoing war between insurers, OEMs, and replacement part manufacturers. Requiring OEM replacement parts can raise the cost of repair in many instances to the point of totaling a vehicle which could otherwise be repaired. Auto makers are warning dealerships that the use of non-OEM parts in repairs could expose them to liability as well. As you might expect, the battle is also taking place in the courts.
Avery v. State Farm
In 2005, the Illinois Supreme Court lit a firestorm of criticism when it decided the case of Avery v. State Farm Mut. Auto. Ins. Co., 835 N.E.2d 801 (Ill. 2005). The plaintiffs filed a state court class action lawsuit claiming that State Farm’s practice of using non-OEM parts violated its policy terms, violated the Illinois consumer protection laws, and constituted misrepresentation and fraud. Notwithstanding the fact that the various State Farm policies could not be construed to require the use of OEM parts, a jury found State Farm liable and awarded the plaintiffs $445 million in damages and an additional $730 million in punitive damages, for a total verdict of $1.06 billion (with a “b”). On appeal, the Illinois Supreme Court reversed, agreeing with State Farm that this should not have been a class action and that the Illinois consumer protection statutes did not apply to the many insurance claims that took place outside of Illinois. They also found that the evidence did not support a fraud claim. The decision meant that, in Illinois at least, the use of like kind and quality, competitively priced aftermarket repair parts is recognized by the insurance code and is not categorically prohibited. The decision emboldened insurers and the non-OEM part makers. Since Avery v. State Farm, more class actions have been filed and they are in various stages of litigation.
In 2000, the automakers controlled $7.2 billion of the $9 replacement part industry. Today, body shops still purchase OEM parts over non-OEM parts five to one. Some repair shops receive a 25% discount on OEM parts, which is not passed on to the vehicle owner or insurance company.
In 2015, U.S. Senator Richard Blumenthal (CT-D) called on the U.S. Department of Justice to investigate the practice. “Safety concerns are raised by this practice of steering because often it involves the use of parts that may be salvaged or inferior or even counterfeit and that is a real urgent and imminent safety concern for the consumer who may have no idea what the origin of the parts are, who made them, or even whether they’re installed properly,” Blumenthal said to CNN. Shortly thereafter, more than 500 repair shops from 36 states joined in a lawsuit against the top insurance companies, and states like Louisiana, Mississippi, and Oklahoma are also getting involved. The Louisiana Attorney General has filed a lawsuit against State Farm alleging that they have engaged in a pattern of unfair and fraudulent business practices involving the use of unsafe aftermarket parts installed without the knowledge or consent of Louisiana consumers and vehicle owners. The allegation is that State Farm steered consumers to direct repair providers that have signed agreements with the insurance company, dictating how long the repair should take, what types of repairs are made, and the quality of replacement parts. The attorney general claims that, in many cases, the repairs are completed with sub-standard parts without the consent of the insured, or made with junk yard parts of questionable quality.
Many insurance companies now offer an “OEM Endorsement” to an auto insurance policy or otherwise allow an insured to opt for OEM part coverage. An OEM endorsement ensures that aftermarket replacement (non-OEM) crash parts won’t be used to repair a vehicle. Policyholders are often required to have comprehensive and/or collision coverage to add this option. Comprehensive and collision coverage is often extended to repair or replace damaged property with new OEM parts, provided they are available, which creates another issue for the parties. In order to obtain the OEM Endorsement, a vehicle is frequently required to meet the following criteria:
- Must carry both comprehensive and collision coverage;
- Must be an auto, pickup, or a van; and
- Must be 10-years-old or newer.
A car’s age is measured by the current calendar year minus the vehicle model year. OEM Endorsement coverage is only available up through the vehicles 10th year of age. After that, the coverage will automatically be removed from the policy at the next renewal period.
State Farm has a program called the “Select Service Program.” It gives their insureds an option when vehicle repairs are needed, by having the repair shop write a complete estimate with OEM parts. The estimate is then augmented with non-OEM parts by using software called Parts Trader, which pulls non-OEM parts into the bid automatically. One hour is given for quotes and the repair shop updates the estimate with the part types and prices they selected. However, State Farm advises that if insured wants parts other than those included on the repair estimate, the insured can advise the repair shop, but the insured will have to pay the increased cost of using OEM parts. This does not apply to tires, batteries, belts, hoses, and other maintenance items subject to wear and tear. The State Farm website reads as follows:
State Farm® keeps the promise of “Good Neighbor” service every day as we pay individual claims. Our promise includes a commitment to your satisfaction regarding new non-original equipment manufacturer (non-OEM) and recycled parts used in the repair of your vehicle. When a damage estimate is prepared, it may include competitively priced, readily available new non-OEM parts, recycled parts or new parts provided by the manufacturer of your vehicle.
If the owner is not satisfied with the repairs using non-OEM or junk yard parts, State Farm promises to repair or replace to the owner’s satisfaction.
The Claims Process
The insurance industry pays for 90% of all collision repairs. After an accident that involves vehicular damage, an insurance company typically has the vehicle appraised to determine whether its policyholder’s vehicle must be deemed a total loss or is repairable. For an article discussing when a vehicle is considered a total loss and the laws and regulations of all 50 states regarding same, see HERE. When a vehicle is a total loss, the insurer will issue payment to its policyholder in the amount of the vehicle’s fair resale value. However, if the vehicle is not a total loss, assessing a vehicle’s repair cost can be problematic due to varying repair cost estimates, some of which may include the use of cheaper, aftermarket parts or non-original manufacturer (OEM) auto parts. The first-party repair of a damaged vehicle is when an insured negotiates with his or her own insurance company for repair of the insured vehicle. The insurer’s obligations depend on the terms of the insurance policy, as well as the wishes of the vehicle’s owner.
When a third-party tortfeasor is responsible for causing an accident, the insurance company insuring the vehicle driven by the “at-fault” driver is typically liable to pay for a portion of the damages caused by the accident. Such insurers are typically required to repair a damaged vehicle to substantially the same condition as it was in before the damage occurred. However, third-party liability carriers will often try to negotiate to pay only a portion of the full cost of repairs, arguing that their at-fault insured was only partially at fault for the accident or loss. As a result, the first-party carrier will often make the repairs and then seek subrogation against the third-party liability carrier and/or it’s insured to recover the cost of repairs.
If an insurer is paying for collision repairs and the insurance policy calls for original manufactured crash repair parts, the insurer will repair the policyholder’s damaged vehicle according to the terms of the policy. However, if a driver’s insurance company is paying due to an accident caused by another driver, is it fair to be forced to accept aftermarket parts? The issue has become quite contentious and involves billions of dollars. State legislatures and insurance commissioners are slowly coming to the table with laws and regulations addressing the issue.
The repair shop industry loves OEM parts because they fit perfectly and do not need retrofitting or adjustments. They also produce fewer customer complaints and repair follow-ups. The repair shops usually do not have OEM parts in stock, so they have to be ordered, which can lengthen the time a repair takes. Insurance companies, on the other hand, prefer non-OEM parts because OEM parts are more expensive. They usually use OEM parts only if no other parts are available and feasible. Vehicle owners and insured are caught in the middle. Some prefer OEM parts and others – especially those who are paying for the repairs personally – like the lower prices and quicker repairs which non-OEM repairs allow. Nobody wants to sell inferior parts because for-profit businesses don’t make a profit if customers have to return with complaints and defects in parts and/or workmanship. The insurance industry, in particular, is advocating for the use of non-OEM parts because, of course, they are cheaper. Whether or not they are inferior remains a point of some contention and debate. Every year, tens of thousands of vehicles and light trucks are repaired with non-OEM parts.
Some repair shops blame insurance companies for “pushing them” to use used or salvaged replacement crash parts. In some cases, the shops claim that insurance companies are steering their policyholders toward body shops that “play ball” and use the aftermarket parts. They say that if a body shop refuses to use such an aftermarket part due to safety concerns, the insurance company steers their insureds elsewhere. Most insurers deny this allegation, however.
Whether CAPA-approved or not, non-OEM parts are significantly less expensive than OEM parts. Non-OEM parts can cost anywhere from 20 to 65% less than the cost of OEM crash parts. Using Non-OEM parts can be the difference between a car that is deemed repairable and one that is considered a total loss. Auto makers and those who oppose the use of aftermarket crash parts argue that the cost of generic parts is quickly made up by the poor quality of the parts and negative impact on the vehicle’s resale value. Insurers, however, argue that lower repair costs result in lower premiums for policyholders. If after-market parts were never used, the high cost of OEM parts would drastically increase insurance premiums.
Concerns have been raised for many years about the quality and safety of aftermarket crash parts. Generally, insurance companies believe that aftermarket parts are cosmetic only and accordingly do not affect vehicle safety. On the other side of the safety debate, auto makers argue that non-OEM parts do not fit or wear the same way and, therefore, can be unsafe. No clear conclusion concerning the safety of aftermarket parts has been reached. However, studies by the Insurance Institute for Highway Safety (IIHS) found that non-OEM parts do not affect vehicle safety.
Insurers do not warrant the actual repair part; rather, insurers simply maintain a contractual relationship with the insured policyholder to repair vehicles to a pre-loss condition. Warranties have been an important aspect in the debate over the use of aftermarket crash parts.
The idea that the use of non-OEM parts voids the auto manufacturer’s warranty has been floated out there, but is completely false. The issue is whether the use of non-OEM aftermarket crash pars would affect the warranty on the entire vehicle. Opponents of non-OEM parts argue that using non-OEM parts to repair a damaged vehicle voids the manufacturer’s warranty. This argument is without merit. The federal Magnuson-Moss Warranty Act provides that no warrantor may condition the continued validity of a warranty on the use of only authorized repair service and/or authorized replacement parts for non-warranty service and maintenance.
Most insurance companies offer their insureds a choice – paying more for OEM parts or accepting aftermarket parts. Whether an insurer is adhering to the terms of its insurance policy agreement when it repairs its insured’s vehicle with aftermarket crash parts and whether repairing damaged vehicles with non-OEM parts restores the damaged vehicle to substantially the same condition as it was in before the damage occurred are both debatable and the subject of much litigation. Much depends on the language of the auto insurance policy and on the individual state law.
The Magnuson-Moss Warranty Act (MMWA), 15 U.S.C. § 2301, et seq., prevents manufacturers from voiding or invalidating warranties based on the use of aftermarket or recycled genuine OEM parts during repairs. It is a federal law, passed in 1975, that governs consumer product warranties. Its purpose was to improve the adequacy of information available to consumers, prevent deception, and improve competition in marketing of consumer products. It requires manufacturers and sellers of consumer products to provide consumers with detailed information about warranty coverage. In addition, it affects both the rights of consumers and the obligations of warrantors under written warranties. Its purpose was to ensure that consumers could get complete information about warranty terms and conditions. By providing consumers with a way of learning what warranty coverage is offered on a product before they buy, the Act gives consumers a way to know what to expect if something goes wrong, and thus helps to increase customer satisfaction. It also ensures that consumers could compare warranty coverage before buying. Finally, its purpose was to promote competition on the basis of warranty coverage. By assuring that consumers can get warranty information, the Act encourages sales promotion on the basis of warranty coverage and competition among companies to meet consumer preferences through various levels of warranty coverage. It does not require a company to provide a warranty, but once a warranty is offered, it must comply with the Act.
The National Highway Traffic Safety Administration (NHTSA) is a federal agency, responsible for reducing accidents, deaths, and injuries resulting from motor vehicle crashes. See GAO-01-225 Aftermarket Crash Parts. The Motor Vehicle Safety Act provides NHTSA with the authority to prescribe safety standards for new motor vehicles and new motor vehicle equipment sold in interstate commerce—a category that includes aftermarket crash parts. Although NHTSA has the authority to regulate aftermarket crash parts, it has not determined that these parts pose a significant safety concern and, therefore, has not developed safety standards. Some aftermarket parts are regulated by the NHTSA based on safety concerns. NHTSA regulates equipment that is required on all new motor vehicles. Emissions-related parts are also regulated by the U.S. Environmental Protection Agency (EPA) or other state agencies. An aftermarket part may be directly regulated (e.g., lighting equipment, tires, mirrors, brake hoses) or it may be indirectly regulated (i.e., a part may not take the vehicle out-of-compliance when installed). In all cases, NHTSA can regulate any equipment that poses a safety concern. Individual states may enact equipment regulations which are identical to NHTSA standards or, in the absence of a federal rule, create their own laws and regulations. Examples include rules regulating the use of parts such as auxiliary lighting equipment, noise levels for exhaust and stereo systems, suspension height, and window-tinting. It is the responsibility of the manufacturer to be aware of federal and state laws and regulations in order to meet compliance requirements.
The Specialty Equipment Market Association (SEMA) is a trade association consisting of manufacturers, distributors, and retailers of autos and auto parts, and SEMA has compiled a comprehensive “Black Book” which is an excellent resource for the industry on compliance requirements and how to secure applicable CARB Executive Orders (E.O.s) whereby the manufacturer can demonstrate that its product will not increase the emissions on the intended model year vehicle when installed. This Black Book can be viewed HERE.
Aftermarket Parts Model Regulation and Legislation
The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the every state. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S. The NAIC has compiled a series of model laws, regulations, and guidelines which state legislature and/or state insurance commissioners can either adopt or use as models in crafting new legislation, rules, and guidelines within various areas of the insurance industry. In 2000, the NAIC drafted the After Market Parts Model Regulation which can be found on the NAIC website HERE. It proposes model Unfair Trade Practices legislation which addresses the industry’s use of non-OEM parts in auto damage repairs which insurers pay for on their insured’s vehicles. Some states have adopted the model regulation verbatim, while others have used bits and pieces in crafting their own rules and laws on the subject.
The National Conference of Insurance Legislators (NCOIL) is a legislative organization comprised principally of legislators serving on state insurance and financial institutions committees around the nation. NCOIL writes Model Laws in insurance, works to both preserve the state jurisdiction over insurance as established by the McCarran-Ferguson Act seventy years ago and to serve as an educational forum for public policy makers and interested parties. In 2010, NCOIL’s Property and Casualty Insurance Committee drafted a proposed Model Act Regarding Motor Vehicle Crash Parts and Repair. It sets forth situations in which auto carriers can specify the use of aftermarket crash parts and sets forth disclosure and consent requirements, establishes conditions whereby these parts can be specified, and requires permanent identification of crash parts. The Automotive Service Association (ASA) and the Society of Collision Repair Specialists (SCRS) were opposed to the Model Act. Meanwhile, the American Insurance Association (AIA) asked for the Model Act to include the use of aftermarket crash parts provided the insurer warrants them, requires notification to the insured along with delivery of the policy if aftermarket parts are used or allowed.
Federal Motor Vehicle Safety Standards (FMVSS) are regulations issued by NHTSA that establish minimum safety performance requirements for vehicles and other equipment travelling on public roads. They establish performance requirements without dictating design specifications. FMVSS regulates basic auto safety equipment, such as tires, headlamps, tail lamps, brake parts, etc. They also establish crashworthiness requirements which include front and side impact, roof crush crashworthiness, fuel systems, and the like. It is not for a non-OEM to manufacture or market parts that do not conform to these FMVSS. A quick guide to FMVSS can be found HERE. Even foreign manufacturers, assemblers, and importers are required to designate a permanent resident of the U.S. as the manufacturer’s agent for service of all process, notices, orders, and decisions, and they too are required to meet U.S. minimum standards and laws.
Currently, the aftermarket repair part makers have about 15% of the repair part market, with OEM’s enjoying the balance. That ratio is destined to change.
A number of states have enacted legislation which regulates the use and disclosure of aftermarket (non-OEM) crash parts by insurers in vehicle repairs. Some have not yet addressed the issue. Bills are routinely proposed by legislators which ban the use of non-OEM and junk yard parts, in the belief that such parts are sub-standard and without recognizing the utility and value the use of such parts provides to the insurance industry and without recognizing their role in helping to hold down auto insurance premiums. As an example, Michigan recently passed House Bill 4344, which restricted the vehicle repair community’s access to the broad range of non-OEM parts. However, the bill was vetoed by Gov. Rick Snyder. Despite being the home of the big three automakers, Michigan also has a robust aftermarket parts industry. Governor Snyder was concerned that the bill would increase auto insurance prices that were already too high, creating a greater financial burden on Michigan residents. The details of the bill, which was similar to other proposed legislation in other states, included:
- The 62-page bill updated the 1974 Michigan Motor Vehicle Service and Repair Act and made reference to restricting use of “major component parts,” which only included sheet metal and body parts.
- The period covered by the statute was the term of the vehicle manufacturer’s original warranty, or the first five years of the vehicle manufacturer’s original warranty; whichever was less.
- It required repair shops to replace major component parts [certain sheet metal and/or body parts] with one of the following:
- New original equipment manufacturer (OEM) parts;
- Used or recycled original equipment manufacturer parts, or
- Parts that meet any applicable federal motor vehicle safety standards established under 49 CFR 571, and meet the standards for parts recognized as OEM-comparable quality as verified by the Certified Automotive Parts Association, NSF International, or another nationally-recognized automotive parts testing agency.
- The repair facility had to be directed by the owner of the motor vehicle, in writing, for permission to install a part that does not meet subdivision (a), (b), or (c), [above].
Regardless which side of the debate you come down on, more legislation proposals similar to Michigan’s can be expected and the auto repair landscape will continue to grow more confusing and fraught with potential landmines for the unwary. One thing is clear – this interesting debate is one which bears watching within our industry. Insurance professionals must be aware of the current legislation and regulations within each state in order to properly adjust each individual claim. A chart that takes a closer look at the specific laws and regulations in each state can be found HERE. It is not to be considered a complete or exhaustive list of laws applicable, but is to be used as a starting point for understanding the law surrounding the controversial use of aftermarket parts in vehicle repairs.
For more questions on auto insurance subrogation by insurers, contact Gary Wickert at [email protected].