P&C insurers using consumer laws to sue service providers, says AEPI

By Rayne Morgan

The Automotive Education and Policy Institute (AEPI) has called attention to a “concerning” new trend of property and casualty insurance providers using consumer protection laws to sue service providers.

“We have a significant concern [about] something that we’ve been noticing — a trend [where] property and casualty insurers are utilizing consumer protection laws that were expressly designed to protect consumers,” attorney Erica Eversman of the AEPI said during the National Association of Insurance Commissioners Spring 2024 meeting.

She said insurers have begun using these laws “as a sword” against other businesses to avoid paying claims or recoup payments even when no consumers have lodged complaints.

The AEPI is calling on legislators to intervene, including by expressly barring insurers from using these laws as a legal avenue, before the issue does serious harm to the very consumers such laws were meant to protect.

Using consumer laws a rising trend

Eversman said the trend of insurers using consumer laws to sue service providers has become “surprisingly” prevalent across the United States.

“What we’re beginning to see in probably the last five to seven years [is] P&C insurers figuring ways that they can either avoid paying claims to providers or to recoup monies that have been paid by combing through the consumer protection law and all of the documentation that is provided in the consumer’s claim for which an insurance company will be the bill payer,” she said.

In doing so, they are checking to find any technical violations of the law, even for minuscule infractions, and then suing the service provider over that violation — even in the absence of consumer complaints.

Eversman explained that some insurers see this as a win-win because not only can they avoid making a payout or possibly get their money back, but the consumer laws are designed in such a way that they can also recoup attorney fees.

“We’re beginning to see this moving all across the country,” she said. “I’ve seen it in a variety of different states. It is involved to greater or lesser degrees…in part because, within the industry, when one company starts to do something and gets traction, everybody else jumps on board and does the exact same thing.”

Lose-lose for service providers

Eversman acknowledged that there is some debate about whether insurers are standing in the shoes of the consumer by bringing up consumer law violations.

However, she said “business-to-business litigation” ultimately puts service providers, who Eversman noted have an obligation to the consumer, in “a terrible position.”

“Now what you have created, if we permit this to continue, we will have providers who are terrified of being sued by the insurer because they will know that that will happen,” she said.

She suggested that one possible outcome could be the creation of a class of service providers who fail to act in the best interest of the consumer — instead only engaging in behaviors that please insurers to avoid being sued.

Alternatively, it could drive responsible service providers out of business entirely.

“What we find happening is that the insurers who are engaging in these types of practices are systematically driving the providers who really care about doing the right thing for the consumer and advocating for the consumer out of business,” she said.

‘B2B litigation’ cuts the consumer out

Eversman said the bigger problem with this trend is that it defeats the purpose of consumer laws as no one is representing the consumer’s interest.

As an example, she referenced a current pending case where a single insurer is suing a single provider to recover or avoid payment on 1,700 or more claims for which there is “not one single consumer complaint.”

“Not one consumer was dissatisfied with the service or the goods provided… This was all whether one business wanted to pay, and a different business wanted to be paid,” she said.

“It wasn’t about whether consumers were being satisfied or whether consumers were being harmed… The reality is that the consumer protection law was not created to protect savvy business enterprises.”

Recommendations

The AEPI is now urging regulators and legislators to get involved in the matter in a number of ways, for starters by requiring insurers to notify their respective Department of Insurance of any legal cases where they intend to use consumer protection laws for their own interest.

Eversman also urged regulators to issue a bulletin or statement indicating that insurers are not consumers by definition, so cannot use those laws on their own behalf.

“I would ask you to notify legislators to consider, including in any alterations to the consumer protection laws, the idea that insurers are not considered eligible to use consumer protection laws, and to codify this position,” she said.

The AEPI is a non-profit organization founded by Eversman in 2008. Its mission is to provide consumers and professionals with information and resources, primarily related to the auto insurance industry.

Rayne Morgan is a content marketing manager with PolicyAdvisor.com and a freelance journalist and copywriter.

Rayne Morgan is a journalist, copywriter, and editor with over 10 years' combined experience in digital content and print media. You can reach her at [email protected].