An LKQ representative a week ago argued that a Texas bill’s proposed meaning of “like kind and quality” alternative parts unfairly required matching internal automaker specs no OEM will make open to aftermarket vendors.
But Tracy Law Firm owner Todd Tracy told the Texas House Insurance Committee it was “disingenuous,” depicting qualification under House Bill 1131 as a straightforward matter of reverse engineering by an aftermarket part provider.
For his part, bill sponsor Sponsor Rep. Travis Clardy, R-Nacogdoches, told the committee, “This bill does not require OEM parts. It requires parts that work.”
He said such parts might be recycled or aftermarket. “It’s about the quality of the parts,” he explained.
“They have to be proven parts,” agreed Texas Watch Executive Director Ware Wendall, whose organization supports the bill.
House Bill 1131 requires insurers to follow along with OEM repair procedures but carves out the best for “a component or product which is of like kind and quality.” The bill puts the responsibility on either the insurer or part manufacturer to have proven this status. The appropriate language states:
“You will find criteria set for auto parts that no part manufacturer could meet,” LKQ central region government affairs manager Kevin Fisk told the home Insurance Committee on April 13.
Automakers wouldn’t give other manufacturers “specs” or standards, Fisk said. “They'd never provide that information to competitors,” he said.
But Tracy presented reverse-engineering as a simple challenge, implying that process will be a means of satisfying the bill’s language.
“The gentleman from LKQ noted, ‘We don’t understand what their parts are made of, because we can’t replicate it,”” Tracy said. “Engineering 101 tells us that you can reverse-engineer anything.”
A vehicle might be disassembled, reverse-engineered and also the material known, based on Tracy. “It’ll take you a weekend,” Tracy said. He called LKQ’s assertion it couldn’t replicate the OEM “disingenuous.”
Fisk hasn't yet returned an inquiry asking if he wished to respond to Tracy’s comment.
“You can reverse-engineer these parts,” Auto Body Association of Texas board member Chad Kiffe agreed throughout the hearing.
Clardy has not replied for an inquiry clarifying his vision for matching OEM components.
While automakers don’t provide their own internal specs, the makers whose parts LKQ distributes can reverse-engineer the OEMs’ parts, LKQ said Wednesday.
“LKQ distributes parts that meet OEM vehicle specifications and state laws,” LKQ North America sales and marketing Vice President Terry Fortner wrote within an email Wednesday. “This includes OEM and alternative replacement parts. LKQ stands behind the quality of the various components it sells and can indemnify any body shop that installs these parts as outlined in our Commitment of Protection. Quality assurance, including the materials, are painstakingly vetted by the manufacturer, as well as third parties, during growth and development of the part. We stand behind these items that are designed and manufactured to come back the vehicle to pre-accident condition.”
Kiffe called on any parts manufacturer who opposed the balance to “please explain why.” He explained the bill requested those suppliers deliver “quality replacement parts” matching “what the OEM has set forth.”
American Property Casualty Insurance Association state relations V . p . Joe Woods acknowledged that in terms of external auto parts of the body, “there may be easily issues with aftermarket parts.”
Sometimes, body shops will say, “‘We can’t make it fit,'” Woods said.
But Woods argued other components should be permitted. After referencing recycled and aftermarket components, he explained: “They don’t need to, they don’t need to, its not necessary for them to be the original manufacturer’s part. A radiator is a radiator, and when they create it that matches and meets the specifications, it should be fine to use that radiator”
Former repair shop owner Rep. Ramon Romero, D-Ford Worth, asked Texas Coalition for reasonable Insurance Solutions Executive Director Beaman Floyd if he felt a recycled part which in fact had recently been painted once before was equal to an OEM part.
“It can be,” said Floyd, whose organization counts State Farm, Allstate, USAA, Farmers, Nationwide and Texas Farm Bureau Insurance as members. “If it’s like kind and quality, if it passes various safety tests. The companies that I represent are extremely seriously interested in guaranteeing the caliber of alternative parts and recognize various certifications.”
Romero asserted sanding, priming and painting a recycled part meant a big change of the “little minute thickness.” It could look the same to most people, however it appears “completely different” to his eyes, he said. Will he complain for an insurer and get a redo, he asked.
Floyd asserted customers had the choice of part. If an insurer provides “like kind and quality, that is not one that continues to be sanded or is substandard in a manner that you don’t think fit,” a person might have to “shell out of pocket” to get an OEM part.
Asked in regards to a situation where a consumer didn’t specify a part, therefore the insurer decided which one to use, and a friend ultimately notices “my job looks shoddy,” Floyd said customers could generally return to an insurer and say, “‘I’m uncomfortable with this particular repair.'”
In other parts news, HB 1131 also prohibits an insurer from demanding an automobile be fixed “having a part or product on the basis that the part or method is the least expensive part or product available.” Carriers also can’t have to have a customer obtain these parts and products from a specific “vendor or supplier, including an out-of-state vendor or supplier, because the part or method is the least expensive part or product available.”
The bill remained pending Monday prior to the Insurance Committee.
NAIC on ‘like kind and quality’
Regardless of the bill’s outcome, the insurance coverage Committee’s discussion on April 13 and HB 1131 poses a fascinating question for that industry. What’s the definition of “like kind and quality?”
We asked the Texas Department of Insurance Monday if the concept was defined in any state regulations, regulator or TDI guidance.
“We are not aware of an insurance coverage law that defines ‘like kind and quality’ or a law that explicitly states that it's an unfair claim settlement practice to exchange a part with something that isn't ‘like kind and quality,'” Ben Gonzalez of TDI media relations wrote in an email Tuesday. “Some auto insurance policies use that language.”
The National Association of Insurance Commissioners’ model regulation on the topic is rather vague — and arguably extremely dated.
Adopted later, NAIC’s template language for regulators states: “An insurer shall not want using after market parts in the repair of the automobile unless the after market part is at least equal in kind and quality towards the original part when it comes to fit, quality and performance. Insurers specifying the use of after market parts shall consider the cost of any modifications that may become necessary when making the repair.”
Fit, quality and gratifaction aren’t defined.
The notion that certain parts weren’t meeting a “like kind and quality” threshold was a concern then.
“In testimony to , an after market parts association representative admitted that 20-25 percent of the parts made by his members weren't of like kind and quality to the OEM part,” NAIC summarized.
NAIC regulators in 1987 felt an insurer must ensure the parts if the parts manufacturer didn’t, though this requirement doesn’t appear in the model regulation.
“It was suggested the language of require certification the parts were of like kind and quality,” the NAIC summarized the 1987 discussion. “An after market parts manufacturer wouldn't incur the expense of certification if insurers didn’t want it. In lieu of certification, the maker could guarantee the parts. To the extent the non-OEM manufacturer didn't provide or honor such guarantee, the insurer ought to provide or honor the guarantee.
“One regulator said he would feel well informed with an expert determining whether a part is of like kind and quality. He noted that if tests are not implemented within the draft, then your task force should at least think about a provision requiring the insurer to be sure the after market part, as deliver to in certain earlier drafts. It had been the choice of the subgroup that it was unnecessary since Section 5 requirements are in effect a guarantee.”
As indicated above, the 1987 discussion summarized in the document suggests regulators considered but dispensed with ways to validate parts. However, additionally, it notes the After Market Parts of the body Association, the old name from the Automotive Parts of the body Association, had set quality standards for members.
“A representative from the After Market Body Parts Association testified around the standards established by his organization. There is a warranty certification program, along with a standards and specification manual continues to be promulgated through the association. Test runs on the goods are extensive and ratings are in place for that parts. The association standards demand all production plants to be checked every Thirty days for compliance using the standards.”
Executive Director Ed Salamy wrote in an email Monday the program the NAIC described was “way before my time and I don't have any records of it.” However, he thought the NAIC may have been talking about the Certified Aftermarket Parts Association format before CAPA was formally created in 1987.
