Auto Independent Adjuster Certification - Eberl s · April 2010 Auto Independent Adjuster...

April 2010 Auto Independent Adjuster Certification

FOR INTERNAL STATE FARM USE ONLY

Contains CONFIDENTIAL information which may not

be disclosed without express written authorization

State Farm Insurance Companies

Auto Independent Adjuster Certification

Participant Guide





The information presented herein is for instructional purposes only. Application of the policies and suggestions presented in this material may be affected by variations in state law, as well as subsequent changes in Company practices and procedures.

This reference material contains excerpts from articles contained in the Auto Claim Manual (ACM) including Auto Damage Service Programs, Motor Vehicle Repair Cost Policy, Non-OEM/Recycled Parts, Paintless Dent Repair, Betterment, Writing the State Farm Estimate, and Draft Procedures. Also included are excerpts from Claims Procedures Guide (CPG) 2700-110, 2700-270 and 3025-230 and may contain other reference material as well.

Since it is important that you refer to the current versions of these documents at the time of claim handling, we suggest you discard this document after the Live Desktop broadcast and refer to the Auto Claim Manual on SFNet for the latest information.

Copyright 2010, State Farm Mutual Automobile Insurance Company Home Office: Bloomington, Illinois





Table of Contents

Estimator Fact Sheet ..................................................................................................... 4

Q Draft and Payment Log ............................................................................................. 6

Auto Damage Service Programs .................................................................................. 8

Motor Vehicle Repair Cost Policy .............................................................................. 13

Non-Original Equipment and Recycled Parts ........................................................... 19

Non-Original Equipment and Recycled Parts Graph .................................................. 25

Non-Original Equipment and Recycled Part Notification ........................................... 26

Writing the State Farm Estimate ................................................................................ 29

Paintless Dent Repair ................................................................................................. 43

Betterment ................................................................................................................... 53

Vehicle Inspection Report / Total Loss Settlement Report ...................................... 58

Prior Damage Decision Tree ...................................................................................... 60





ACM March 03, 2010

Auto Damage Service Programs

Auto Service Commitment

Customers with vehicle damage claims expect repair work to be completed properly, promptly, and at competitive prices. Vehicle owners are free to choose the repair facility that will perform repairs. So customers can make an informed decision, we provide them with information about State Farm’s Auto Damage Service Programs.

State Farm® established the Select Service and Paintless Dent Repair (PDR) Programs to help customers with their vehicle repair needs. Repairers selected to participate in these programs offer convenience and repair quality assurance to our customers.

For customers who do not choose repairers who participate in our Select Service or PDR Programs, State Farm may provide a repair estimate using prices that are competitive in the market area or approve an estimate provided by the vehicle owner. If PDR is specified, the pricing is based on agreements we have with repairers for such repairs. In rural markets, estimates from local repairers may be considered as we determine our payment obligations.

SEE: ACM - Motor Vehicle Repair Cost Policy

Select Service

The Select Service Program is designed to enhance customer service and increase efficiency in our claim operations. This can be accomplished by allowing Select Service repairers to assist vehicle owners by performing vehicle inspection and estimating functions.

The Select Service® Program provides enhanced benefits to the vehicle owner including quality workmanship, guaranteed completion dates, limited lifetime warranties on completed repairs, and pick up and delivery when requested.

Repairers are selected for the program based on market area capacity, overall performance related to quality, efficiency, competitive pricing, and other business needs.





SEE: ACM - Select Service® Program

Staff Prepared Estimates

Some vehicle owners do not choose repairers who participate in the Select Service or PDR Programs. State Farm provides the vehicle owner with a repair estimate using prices that are competitive in the local market area.

If PDR is specified, pricing is based on agreements we have with repair facilities and which is competitive in the market for such repairs. In rural markets, repair estimates from local repairers may be considered as we determine our payment obligations.

SEE: ACM - Writing the State Farm® Estimate

ACM - Repair Facility Survey Process

ACM - Rural Estimatics

Paintless Dent Repair

PDR is an industry recognized repair process that involves the removal of damage from metal exterior surface panels without disturbing the vehicle's finish. The PDR process is often used to repair hail damage or other similar dents that occur when an outer panel strikes (or is struck by) an object that has not comprised the finish of the panel.

In most cases, this procedure involves the use of specialized tools to apply pressure to the backside of the panel to remove surface imperfections. Other techniques may be used to repair damage from the topside of the panel, depending on the size and location of the damage. Since the outer finish of the panel has not been disturbed, both techniques eliminate the refinishing process and may allow for repairs to be completed in a timelier and cost effective manner.

When PDR is a viable repair option, the process may be initiated by a State Farm staff estimator, a program repair facility, or a PDR provider. In some cases estimates may reflect PDR repairs only, or PDR repairs in conjunction with conventional repairs.

SEE: ACM - Paintless Dent Repair





Rural Estimatics

In areas where State Farm does not provide estimating services or the Select Service Program is not available, State Farm should request the vehicle owner obtain competitive estimates. The use of a single estimate to establish repair costs should be rare but may be allowed at the discretion of local management.

When competitive estimates are submitted, individuals responsible for reviewing these estimates should have an understanding of vehicle repair issues and State Farm's Motor Vehicle Repair Cost Policy.

In most cases, estimates provided by the vehicle owner or their selected repairer can be faxed or mailed to the claim operation for review. There may be cases when an individual claim warrants physical inspection of the damaged vehicle. It is the responsibility of the claims associate to arrange for such inspection.

SEE: ACM - Rural Estimatics

ACM - Motor Vehicle Repair Cost Policy

Use of Independent Appraisal Firms

When zone management identifies a business need for independent appraisal services, they should contact their assigned Estimating Consultant for further information.

Auto Damage Service Programs – Discussion Information

Vehicle owners are free to choose the repair facility that will perform repairs. The Auto Damage Service Programs - Discussion Information sheet outlines features and benefits available through our program and should be explained to the vehicle owner when we receive notice of the claim.

If the vehicle owner requests assistance locating a program repairer, the claims associate should use the repair facility locator available on statefarm.com®.

If a vehicle owner does not choose a Select Service repairer, the claims associate should explain claim service options available in their area. In areas where State Farm provides staff estimating services, vehicle owners will be provided an estimate based on prices that are competitive in the market area.





Draft Issuance Instructions

When a program repairer has been selected by the vehicle owner, we will initiate payment directly to the repairer as outlined in the Select Service Agreement.

When a non-program repairer has been selected, the claims associate should explain the basis for payment, mail or hand deliver the Payment Notification Letter (Exhibit 1 ), and issue payment in one of the following ways:

1. Vehicle owner only 2. Vehicle owner and lien holder (when applicable) 3. Vehicle owner and repairer at vehicle owner's request 4. Repairer, at vehicle owner's request (if supported in your state) if an assignment of rights

is asserted, or the vehicle owner has signed a direction to pay, or we have verbally documented the vehicle owner's request to pay the repairer in the claim file.

Exhibit 1 - Payment Notification Letter

(Date)

(Insured Name) (Address) (City/State/ZIP)

Claim Number: xxx-xxxx-xxx

(Use only one of the following opening paragraph options)

Attached is our payment for the estimated repairs to your damaged vehicle. You have the right to select the repair facility that will repair your vehicle. Only you can authorize repairs to your vehicle.

OR

We have estimated the repairs to your vehicle and left the estimate and payment at the repair facility you designated. You have the right to select the repair facility that will repair your vehicle. Only you can authorize repairs to your vehicle.

This payment is based on a repair estimate using prices that are competitive in your market area. In the event additional damage is identified by the repairer you select, any amount previously





paid will be taken into consideration as we determine any additional amounts owed. We will review and consider any supplemental amounts requested by you or the repairer you select, should additional loss-related damage become apparent. Any additional payment will be based upon supplemental amounts agreed to by State Farm. You may be responsible for the difference for any amounts not agreed to by State Farm.

If paintless dent repair is specified in whole or in part for your vehicle repairs, payment is based on the price for those repairs from agreements we have with repair facilities for such repairs. This price is competitive in the market area for paintless dent repair.

If you have not selected a repair facility, we can assist you by identifying Select Service® and/or paintless dent repairers who have agreements with State Farm to provide quality repairs at prices that are competitive in your market area. Conveniently located repairers can also be found by going to - www.statefarm.com.

You are free to select repairers who do not have Select Service or paintless dent repair agreements with State Farm. These repairers may perform quality repairs on your vehicle, but may charge more than the prices that are competitive in your market area, and/or prices for paintless dent repair that are established through agreements we have with repair facilities. We will assist you by working with these repairers as best we can.

Please review the damage estimate that has been prepared on your vehicle. If now or later, you or your selected repairer discovers additional loss-related damage to your vehicle, please contact us at the number indicated below.

Sincerely,

(Claim Associate/Team Number) (Phone Number)

Enclosures





ACM 11-21-2007

Motor Vehicle Repair Cost Policy

This article outlines State Farm's basic philosophy as to repair costs. For additional guidelines:

SEE: ACM - Auto Damage Service Programs ACM - Writing the State Farm® Estimate ACM - Repair Facility Survey Process ACM - Estimating Structural Repairs ACM - National Offer and Acceptance Program ACM - Local Offer and Acceptance Program ACM - Multiple Contract Vendor Glass Program ACM - Glass Facility Reference Program ACM - Non-OEM/Recycled Parts

It is our intention that all auto claim handlers, auto estimatics inspectors, property claim trainers, and claim management personnel be familiar with these publications.

Methods of Estimating Vehicle Damage

Depending on the type of loss and the condition and location of the damaged vehicle, State Farm® may use one the following methods to estimate the cost of performing vehicle repairs. Whichever method is used, the resulting estimate should serve to repair the vehicle in a quality manner.

Competitive Bids Prevailing Competitive Prices (PCPs) Select Service® Program Paintless Dent Repair

Competitive Bids

The competitive bid process requires that two or more repairers submit competitive estimates or "bids" for a specific repair job. The amount of the low, complete bid is generally considered to be the "competitive" price and is used as the basis for settlement. In all cases, the vehicle owner selects the facility that will perform repairs.

There are several factors that may affect a repairer's estimate. In most cases, competition in the local repair market will have the greatest effect. A repairer's knowledge and application of the





procedural pages of collision estimating guides will also have an effect. Claim personnel responsible for reviewing and flat-rating repair estimates need to be familiar with the techniques that will be used to repair a vehicle.

Adjustments to competitive bids should be discussed with the vehicle owner and repairer before the repair process begins. Specific agreements regarding changes in repair techniques or types of parts should be communicated to all parties. Failure to resolve these issues may result in customer dissatisfaction or delay in repairs.

Competitive bids may be used to determine repair costs in situations where State Farm has estimated repair costs but those costs are disputed.

On occasion, State Farm may use one of the three automated estimating systems to review and, if necessary, adjust shop-prepared estimates. The purpose of this activity is to "flat rate" the estimate, which involves removing labor overlap and/or included operations. In this situation, the automated system is used as a tool to help the claim employee identify estimating errors or oversights, which may require adjustments to the shop-prepared estimate.

If claim personnel are flat rating using an automated estimating system, the revised estimate should not be represented as a State Farm prepared estimate. The claims associate should contact the repair facility to discuss changes and reach an agreed upon amount. Corrections should be made on the shop's estimate and a copy provided to the vehicle owner. This agreed upon amount should also be discussed with the vehicle owner.

PCPs

State Farm uses a continuous survey that gives repairers the opportunity to provide information online. The repairer information is used to determine labor rates and material pricing levels that reflect prevailing prices in that area. PCPs are determined by analyzing information provided by repairers that meet the Equipment/Capabilities Criteria listed on the Repair Facility Survey form.

SEE: ACM - Repair Facility Survey Process ACM - Writing the State Farm® Estimate CPG 3005-195, Repair Facility and Estimator Application - Market Area CPG 2340-215, Repair Facility Survey

Select Service Program

In some market areas, repairers have been selected to participate in State Farm's Select Service Program. The program is designed to enhance claim service, increase efficiency, and afford customers an opportunity to select qualified repairers to inspect and estimate vehicle damage.





SEE: ACM - Auto Damage Service Programs ACM - Select Service® Program


Paintless Dent Repair (PDR) is an industry recognized repair process that involves the removal of hail dents or other types of damage from metal exterior surface panels without disturbing the vehicle's finish. In most cases, this procedure involves the use of specialized tools to apply pressure to the backside of the panel to remove surface imperfections. Other techniques may be used to repair damage from the topside of the panel, depending on the size and location of the damage. By using either of these techniques, the technician is able to restore panel appearance which eliminates the need for refinishing the panel's surface area.

The PDR process is often used to repair hail damage or other similar dents that occur when an outer panel strikes (or is struck by) an object that has not compromised the finish of the panel. Since the outer finish of the panel has not been disturbed, it eliminates the refinishing process and may allow for repairs to be completed in a more timely and cost effective manner.

SEE: ACM - Paintless Dent Repair

Recommended Repair Procedures and Necessary Operations

The Inter-Industry Conference on Auto Collision Repair (ICAR) has played an important role in developing vehicle repair procedures. State Farm is an active supporter of ICAR and ICAR-approved repair techniques. When we pay for the cost of any repair operation, we presume all necessary repairs will be made.

When a repairer requests payment for an operation not mentioned in the printed or electronic time guides, it is reasonable to ask whether the requested repair operation is necessary. If it is determined a repair operation is necessary, a reasonable charge may be included on the estimate. The local repair market will determine what constitutes reasonable charges for these operations, and we will attempt to work with individual repairers to arrive at reasonable amounts.

If the requested repair operation is not necessary, the cost of the operation should not be recoverable under the policy contract or as legal damages. Explain to the vehicle owner and repairer that we will pay for necessary operations to repair the vehicle in a quality manner.

Occasionally, a repairer may request a line item allowance for a specific process or activity that is associated with performing repair operations, even though it is customary in the local repair market to consider this process or activity as an included or overhead expense, and therefore,





reflected within the labor rates that are charged in that area. In these situations, claim management should explain to the selected repairer that estimates are prepared or approved in accordance with what State Farm considers to be competitive practices established by the local repair market, and a separate line item for this process or activity will not be approved. If it later becomes a prevailing practice in the local repair market to include a competitive line item allowance for this process or activity, a reasonable charge may be included on the estimate. (An example of this type of request would be hazardous waste disposal.)

Items identified in the collision estimating guides/databases as "not included" are those operations that may or may not be necessary to perform in certain repair situations. Since it is not always necessary to perform these "not included" operations, estimating vendors did not consider these operations in the development of the base labor times established in the estimating guides/databases.

It is recognized that some repairers may perform these "not included" operations for no additional charge or for amounts less than the cost determined by use of the vendor's published time at a particular labor rate. Our estimating or reimbursement practices should follow what is determined to be the most competitive. If the estimating vendor has not published a time, work with the selected repairer in an attempt to arrive at a reasonable amount. If a repairer requests payment for a "not included" operation that is not necessary to repair the vehicle, we should resist payment.

In some markets, repairers will charge a competitive "flat fee" or "sublet" price for certain repair operations (for example, wheel alignments, A/C recharge) as opposed to using a vendor's published time in conjunction with a particular labor rate. When this occurs, a more competitive price for the operation has been established and our estimating or reimbursement practices should be consistent with this approach. We should not be obligated to pay a higher amount simply because of a vendor's published time, as using the published time at a particular labor rate may yield an amount which is in excess of the competitive price for this repair operation within the local market. It is not our intention to pay more for a repair operation than what is competitive, regardless of the published time.

If an individual repair situation warrants payment for an operation that is beyond usual and customary for the market area, work with the selected repairer in an attempt to arrive at a reasonable amount.

In cases where we are unable to reach an agreement with the selected repairer regarding payment for a repair operation, it may be appropriate to request the vehicle owner to obtain competitive bids for the complete repair job.





Determining Repair Costs

The prices we pay for most repair operations will be determined from printed or electronic collision estimating guides and repair facility survey results. However, it is not possible to determine the cost of every repair operation from these sources. For example, when estimating a sheet metal or other repair operation, the labor estimate is based on judgment time. When estimating judgment time, it should follow what is competitive in the local market to repair the vehicle in a quality manner.

Repair Cost Payment

Estimates written or approved by State Farm are based on labor rates and repair costs not to exceed what is charged by a majority of the repair market in a given area.

For this purpose, the repair market in a given area means the repair capacity of those repairers who meet the Equipment/Capabilities Criteria listed on the Repair Facility Survey form.

On occasion, a vehicle owner may select a repairer who does not estimate repair costs based on what is competitive for the local repair market. In this situation, obtain or prepare an estimate based on what is competitive in the local market and offer to pay based on that amount.

This same philosophy is incorporated in State Farm's Auto Damage Service Programs.

We do not enter into contracts with repairers on individual repair jobs on a fixed or "contract" repair job basis. We pay for the estimated cost of repair based on physical damage caused as a result of the loss.

Minimum Costs and Authority Levels

Establishing minimum costs or authority levels can provide a realistic measure of repair costs for items such as the number of hours allowed for a complete refinish job, material costs, or similar items. These guidelines are distinct and apart from the PCP concept and are authority levels for estimating personnel. We do not apply "caps" for these items, but we should resist charges that are unreasonable.

Minimum pricing levels for paint and materials may be effective when the individual repair job involves only a minor refinishing operation. Similarly, collision-estimating guides clearly states that "per panel" refinish times do not apply to complete refinish jobs. Claim management has a responsibility to resolve these issues with repair facility management and should communicate any agreements to estimating personnel. If proper documentation is received to support an amount in excess of the estimator's authority level for an individual repair job, we should make the necessary adjustments.





Publication of Survey Information

Questions are occasionally received with regard to State Farm's survey process and PCPs. We have advised the collision repair industry that individual survey data will remain confidential within State Farm. We will not knowingly violate that confidentiality by publicizing individual survey data to persons outside our organization. Requests from regulatory agencies for access to, or copies of, specific survey data should be referred to the assigned Auto or Estimatics Consultant(s).

Summary

State Farm will pay claims based upon reasonable, competitive prices for repairs necessary to repair the vehicle in a quality manner. The policy contract and law of damages will assist us in determining whether certain operations are payable.





ACM April 23, 2008

Non-Original Equipment and Recycled Parts

State Farm® promises satisfaction to the vehicle owner when new non-original equipment and/or recycled parts are specified on an estimate that is written or approved by State Farm or a Select Service® repair facility.

State Farm's promise of satisfaction relative to non-original equipment or recycled parts does not replace any quality or warranty provisions we require from repairers, non-original equipment, or recycled part suppliers.

State Farm's promise of satisfaction for non-original equipment and recycled parts extends to fit, corrosion resistance, and performance qualities.

Should there be any questions regarding State Farm's promise of satisfaction, please contact your Property and Casualty Claims Consultant(s).

Estimating Guidelines

Apply the following guidelines when estimated repair costs include prices based on parts other than new original equipment manufacturer (OEM) parts:

1. Used, rebuilt, or reconditioned parts must be of sufficient quality relative to the part being replaced.

2. When an estimate is prepared by State Farm or a Select Service repairer and the estimate includes new non-original equipment parts, the part(s) must be certified by the Certified Automotive Parts Association (CAPA) if the parts are subject to such certification.

3. No unusual delay must occur as a result of considering non-original equipment and/or recycled parts for use in repairs.

4. The vehicle owner should be notified when the prices of non-original equipment and/or recycled parts are included in the estimate as outlined in CPG 2700-275.





SEE: Auto Claim Manual (ACM) - Writing the State Farm Estimate CPG 2700-275 - Service Center Operation - Customer Notice

Providing State Farm's Promise of Satisfaction

State Farm's promise of customer satisfaction is outlined in the Non-Original Equipment and Recycled Parts - State Farm's Promise to You brochure (160-6728) Exhibit 1. The brochure should be provided to the vehicle owner when either new non-original equipment and/or recycled parts are specified on an estimate that is written or approved by State Farm. The non-original equipment and recycled parts brochure is available through regular supply channels. The information contained in the brochure has been reproduced in this article for informational purposes only.

SEE: CPG 2700-275 - Service Center Operation - Non-Original Equipment and Recycled Part Notification

Note: Indiana utilizes the New Non-Original Equipment and Recycled Parts - State Farm's Promise to You brochure (160-6728IN).

Additional notification procedures are outlined in CPG 2700-275 – Service Center Operation –Non-Original Equipment and Recycled Part Notification.

Customer Inquiries

If we are made aware of a concern and the vehicle owner requests our assistance, the following steps should be taken:

1. Review the repair estimate in the claim file to determine if the part in question was written as new non-original equipment or recycled parts.

2. Arrange for inspection of the vehicle by estimatics staff. The inspection should occur at the repair facility where the repairs were performed if possible.

3. If appropriate, arrange for corrective repairs.

4. Notify the parts supplier of the problem with the parts and coordinate any reimbursement owed, if applicable.

Situations may arise when the original repairer is unable to provide assistance. These situations should be resolved in a way that is most convenient to the vehicle owner.





Payments for repair or replacement of an unsatisfactory part should be made as an indemnity payment. Any subsequent recovery from guarantors of those parts should be credited as a partial indemnity recovery.

Non-Original Equipment Parts Supplier Criteria

State Farm's guidelines for use of non-original equipment replacement parts limit consideration to those parts for which there is assurance of fit and for which there is a written warranty. The State Farm Non-Original Equipment Parts Supplier Criteria Form (Exhibit 2 ) requires that suppliers also agree to these guidelines.

Local management is responsible for determining which non-original equipment parts suppliers are included in the estimating systems. The criteria outlined in (Exhibit 2) should be used to determine whether a supplier should be considered when non-original equipment parts are specified on staff estimates. There should be a signed criteria form in our records for each non-original equipment supplier whose parts we include in our estimates.

Recycled Parts

The State Farm guidelines for the use of rebuilt, recycled, or reconditioned parts require those parts be sufficient to allow for repair of the vehicle in a quality manner.

SEE: ACM - Writing the State Farm Estimate

Exhibit 1 - New Non-Original Equipment and Recycled Parts - State Farm's Promise to You (All States & Canada)

State Farm's Promise to You

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.

When you authorize repairs to your vehicle:

• Using new non-OEM or recycled parts as described on the estimate…

• And we pay for those repairs…





• State Farm promises that you will be satisfied with the fit, corrosion resistance qualities, and performance of those parts for as long as you own your vehicle*…

• OR WE’LL SEE THAT THE PARTS ARE REPAIRED OR REPLACED TO YOUR SATISFACTION – AT NO COST TO YOU**.

* This promise of satisfaction does not apply to tires, batteries, belts, hoses and other maintenance items subject to wear and tear. Our promise of satisfaction for powertrain / drivetrain components, and sound equipment is limited to the length of time that the original equipment manufacturer would have warranted its new replacement part, or the remainder of your automobile manufacturer’s factory warranty – whichever is longer.

** In claims where we pay less than 100% of the cost of repair as a result of a comparative liability settlement, any additional payment will be based on the percentage of liability we accept.

Standards

Insurance companies, manufacturers of alternative parts, and repair facilities established the Certified Automotive Parts Association (CAPA) in 1987 to set quality standards for new non-OEM parts. Estimates written by State Farm and Select Service repairers that include new non-OEM parts contain CAPA certified parts where such parts are subject to CAPA certification. All parts will be identified as to the type of part being estimated. Parts that serve to repair your vehicle in a quality manner will be included on your damage estimate.

The Choice is Yours

The final choice as to which parts will actually be used in repairs rests with you, the vehicle owner.

If you prefer parts other than those included on the estimate, you should notify your repairer. Should the use of those other parts increase the repair cost, you will be expected to pay the difference.

Competition

Competition has led to reductions in the cost of many original equipment manufacturer (OEM) replacement parts and has caused significant improvements in their warranties. This results in higher quality at lower costs for the consumer.





Recycled Parts

Recycled parts are parts which may have been previously installed on another vehicle.

As with all recycling efforts, the use of these parts is an environmentally friendly effort to help preserve our natural resources.

New Non-OEM Parts

New non-OEM parts are manufactured by a company other than the manufacturer of the vehicle.

Exhibit 2 - State Farm Non-Original Equipment Parts Supplier Criteria Form

The following criteria determine whether a supplier's products and services meet the State Farm guidelines for considering non-original equipment manufacturer parts.

• The supplier agrees that new non-original equipment outer sheet metal parts will be backed by a written limited warranty against perforation rust-through for as long as the part is owned by the first retail user. New non-original equipment parts other than outer sheet metal will be backed by a written limited warranty that provides protection not less than the vehicle owner would receive with a new original equipment parts.

• The supplier agrees to maintain stock of at least 70% of the items advertised as "available" through catalog or electronic publications.

• The supplier agrees that delivery will be at no cost to the repairer and normally made within two work days after the order is received.

• The supplier agrees to arrange for return of a defective part at the supplier's expense, to allow credit or a cash refund as requested by the repairer, and to pay the repairer for reasonable and necessary labor costs as agreed upon between the supplier and the repairer.

• The supplier agrees that a sincere effort will be made to resolve disagreements with the repairer concerning the quality and/or condition of the supplier's parts being used in repairs paid for by State Farm.

• The supplier agrees to allow a representative of State Farm to inspect the parts storage facility and inventory during normal business hours.





I certify that parts that I supply meet and I agree to the State Farm criteria.

Supplier:

Address:

Phone:

Signature of Supplier Representative (Owner/Manager):

Date:





Non-OEM / Recycled Parts Promise of Satisfaction Graph

Part Type Promise of Satisfaction

Non-OEM or

Recycled parts

Power train

Drive train

Sound equipment

Maintenance items

subject to wear and tear





CLAIM

PROCEDURES

GUIDE

SERVICE CENTER OPERATION

Non-Original Equipment and Recycled Part Notification

CPG 2700-275

04-23-2008

Introduction

Non-Original Equipment and/or Recycled parts may be included in estimates prepared by State Farm® associates, Select Service® repair facilities, or non-program repair facilities. Estimates containing these parts are subject to the notification procedures outlined below.

Non-Original Equipment/Recycled Part Identification

The following methods can be used to identify a part as non-original or recycled.

1. “QRP” is displayed in the estimate review queue whenever an estimate contains non-original equipment and/or recycled part(s).

2. The “@” symbol appears in Claim Service Record (CSR) next to the individual line item specifying the use of a non-original equipment or recycled part.

3. The specific part type can be determined by opening the estimate line item.

SEE: CPG 3150-115 - ECF – Claim Handler – Estimate Summary Queue Auto Claim Manual (ACM) – Non-Original Equipment and Recycled Parts

Note: Non-original equipment parts will display the “**” symbols next to the appropriate line item on the face of the printed estimate.

Part Notifications and Customer Information





Claim handlers are responsible for ensuring proper notification is provided to customers when estimates contain non-original equipment and/or recycled parts.

All States and Canada except Indiana

The following table will assist claim handlers when determining the notification requirements.

For Then

Non-original equipment part(s)

• Notify the vehicle owner of the use of the part(s). • Provide the vehicle owner with the Non-Original Equipment and

Recycled Parts – State Farm’s Promise to You brochure (160-6728).

• Provide the vehicle owner with a copy of the printed estimate and attach the Non-Original Equipment Replacement Parts Information form. This form is available on State Farm forms under P&C Claims, Auto.

Recycled part(s) • Notify the vehicle owner of the use of the part(s). • Provide the vehicle owner with the Non-Original Equipment and

Recycled Parts – State Farm’s Promise to You brochure (160-6728).

Indiana - Non-Original Equipment and/or Recycled part(s)

Indiana statute requires written notice when non-original equipment and/or recycled parts are included in the estimate. The Replacement Parts Notice - Indiana must be provided to the customer. This form is available on State Farm forms under P&C Claims, Auto.

The following table will assist claim handlers when determining the notification requirements.





For Then Current model year plus last 5 model years

• Provide the Replacement Parts Notice - Indiana form to the customer. This form is available on State Farm forms under P&C Claims, Auto.

• Provide the vehicle owner with the Non-Original Equipment and Recycled Parts – State Farm’s Promise to You brochure (160-6728IN).

• If non-original equipment parts are specified on the estimate, attach the Non-Original Equipment Replacement Parts Information form to the estimate. This form is available on State Farm forms under P&C Claims, Auto.

Any vehicle older than 5 model years

• Provide the vehicle owner with the Non-Original Equipment and Recycled Parts – State Farm’s Promise to You brochure (160-6728IN).

• If non-original equipment parts are specified on the estimate, attach the Non-Original Equipment Replacement Parts Information form to the estimate. This form is available on State Farm forms under P&C Claims, Auto.

Competitive Bids

When it is determined a competitive bid estimate includes the use of non-original equipment and/or recycled parts, the claim handler should use the procedures noted in the tables above. The process of identifying these parts may vary depending on how the estimate was submitted to State Farm.

Should there be any questions regarding these notification procedures, please contact your Property and Casualty Auto Consultant.

ACM April 25, 2007





Writing the State Farm® Estimate

State Farm's estimating activity goals are to:

1. Provide service to our customers.

2. Accurately establish and record the amount of vehicle damage on specific claims.

The actual estimating process is a shared responsibility. Estimatics and Claims personnel must work together to meet our objectives. Each has specific duties that must be accomplished to ensure:

1. Damaged vehicles are inspected promptly.

2. Clear photos and notes document the vehicle damage.

3. Accurate and complete estimates are prepared according to Company policies.

4. Estimates are provided and explained to the appropriate people.

Estimatics and claim management are responsible for coordinating efforts to implement procedures and make decisions to ensure the estimating process operates efficiently.

Prompt Inspection

Inspect damaged vehicles as soon as possible, and begin the claim resolution process. Clear and concise communications between claim representatives and Auto Estimatics Inspectors are essential to this objective.

If a vehicle is driveable and the customer has not selected a Select Service® repairer, an estimating appointment may be set up at an operations center if available. Inspect the damage and prepare an accurate, complete estimate so the claim can be concluded promptly.

If a vehicle is non-driveable and the customer has not chosen a Select Service repairer, a non-drive estimating assignment will be given to an Auto Estimatics Inspector. Before an Auto Estimatics Inspector receives a non-driveable assignment, the following review processes should take place:

1. The review claim representative or assigned claim representative/processor should verify the location of the non-driveable vehicle during the initial contact with the vehicle owner. The reviewer transfers this information, along with a note explaining the area of vehicle damage, to the Estimator Fact Sheet (EFS). Any special comments regarding the inspection are listed in the Assignment Instructions section of the EFS.





2. The estimatics coordinator verifies the necessary information is on the EFS before giving the inspection assignment to the Auto Estimatics Inspector. If the information is incomplete, the estimatics coordinator will take the necessary steps to update vehicle information. If upon receipt of the assignment, the Auto Estimatics Inspector determines a vehicle should be moved or torn down before inspection, the assignment would be scheduled once the appropriate actions have taken place.

When a non-driveable vehicle has been inspected, the Auto Estimatics Inspector and estimatics coordinator are responsible for making sure the information is quickly forwarded to the claim representative or processor. Some information must be conveyed immediately. For example, the claim representative or processor should be immediately advised if a non-driveable vehicle must be moved or is a possible total loss.

It is recommended estimatics coordinators or support personnel be designated to record urgent, telephone-relayed information from Auto Estimatics Inspectors to claim representatives or processors. These messages should be immediately forwarded to the claim representative.

Documenting Damage

Document loss damage with photos and notes to:

1. Clearly identify the vehicle.

2. Establish the extent of visible damage at the time of inspection.

3. Identify any prior damage or unusual wear.

4. Confirm the damaged items on the estimate.

The number of photos and log notes required is dependent on what is necessary to depict and describe damage (or absence of damage) to a specific vehicle. The Auto Estimatics Inspector ensures our documentation objectives are met.

The Auto Estimatics Inspector must provide the claim representative with the estimate of accident-related vehicle damage and/or other information about the vehicle. This information is necessary to achieve proper resolution of the claim. The Auto Estimatics Inspector should provide backing for all estimate entries with photos, digital photo labels, and/or Auto Estimatics Inspector comments in the electronic claim file (ECF).

Accurate and Complete Estimates

State Farm estimates should always be prepared in accordance with our policies and procedures.





SEE: Auto Claim Manual (ACM) - Auto Damage Service Programs ACM - Estimating Structural Repairs ACM - Non-OEM/Recycled Parts ACM - Motor Vehicle Repair Cost Policy

Using the Estimate

Claim representatives or processors review the completed estimate and provide a copy to the customer. When appropriate, the claim representative or processor should explain the estimate elements to the customer.

Auto Estimatics Inspectors should review their estimates with repair facility personnel when vehicles are inspected at repair facilities.

Estimate Assignments

Drive-In Appointments

All drive-in estimates are listed on a drive-in appointment log.

The receptionist or appointment clerk provides the Auto Estimatics Inspector with a copy of the appointment log for the current day.

It is not unusual to have additions (walk-ins) and/or cancellations (no shows) to the appointment schedule. The Estimatics Team Manager/Claim Team Manager will provide guidelines for handling these changes.

SEE: CPG 2610-140, Appointment Log - Unsecured Functions

At the end of each day, the appointment log is forwarded to the estimatics coordinator.

Non-Drive Requests

Non-drive requests are separated or grouped as needed, and the estimatics coordinator assigns them to the Auto Estimatics Inspector(s).

Note: Estimatics Team Manager/Claim Team Manager and/or the estimatics coordinator must document additional non-drive assignments.





Vehicle Inspection

An Auto Estimate form is available for preparing handwritten estimates for insured and claimant vehicles. (This form is available on the State Farm Forms site under P&C Claims, Auto.) Some of these forms are state-specific because of state required notices or fraud warnings. It is important to use the forms approved for use in your state.

Administrative

Begin by reviewing the EFS.

1. Note the Assignment Instructions section, date of loss, coverages, and reported facts.

2. Follow the instructions from the claim representative, processor, or Estimatics Team Manager/Claim Team Manager in the Assignment section.

3. Identify the vehicle by comparing the vehicle identification number (VIN) and damages to the information provided on the EFS. Note any discrepancies in the Comments section of the EFS.

4. Complete the administrative portion of the estimate in detail.

5. Provide complete and unabbreviated information with regard to the estimating assignment.

Damage Entries

Take a moment to walk around the vehicle. Consider damage location, severity, and vehicle condition before determining the best method of repair.

The first item listed on the estimate is frame/unibody damage if applicable. This is shown as a dollar amount in the Sublet column. For guidelines using the Frame/Unibody Damage Analysis Sheet:

SEE: ACM - Estimating Structural Repairs

List all damage to avoid unnecessary supplements and delays. The key to identifying all observable damage during the initial inspection is a proper inspection sequence. Although methods vary, we recommend writing damages, section by section. For example, write all visible damage to the front bumper assembly before moving to another section of the vehicle. This would include reviewing estimating graphics (printed manual or computer) and accounting for





all components attached to the bumper assembly. After listing any damage or parts that may have been overlooked, move on to the next section of the vehicle.

Each line of the estimate should specify one part or repair operation. Exceptions may include parts that are generally installed together, provided each individual part price is shown for body panels that are typically repaired simultaneously, such as a quarter panel and outer wheelhouse.

As a general rule, only damage that can be observed at the time of inspection is itemized on the estimate. However, in some instances, considering the experience and knowledge of the Auto Estimatics Inspector and the extent and/or location of observed vehicle damage, there is a very high probability that hidden parts or components may also be damaged. In these cases, with proper photographic documentation, it is acceptable to list such hidden damage on the original estimate.

When the Auto Estimatics Inspector cannot, at the time of inspection, determine whether a part or component is damaged, it should not be listed on the estimate as an "open" or "shop to check" item. Instead, the Auto Estimatics Inspector should note the potentially damaged item on the EFS and provide appropriate comments and information that can be used if additional consideration becomes necessary.

Consider the following estimating options when making damage entries:

1. Repair

Judgment times are shown in hours and reflect what most repair facilities charge to perform quality repairs. For additional details regarding judgment time:


2. Recycled Parts

For guidelines using recycled parts:

SEE: ACM - Non-OEM/Recycled Parts CPG 2700-270, Estimating

Recycled parts can be listed as an individual line item or as an assembly. Prices quoted from recyclers are for clean, undamaged parts.





The description and quoted price of the component or assembly is shown as a line item. The quoted price, plus the repairer markup, is listed with the damage entry and the amount is shown in the Sublet column.

The Estimatics Team Manager/Claim Team Manager will provide the appropriate markup percentage for each repair facility.

The recycler is responsible for labor costs for repairing minor damage (cleanup time) and should not appear on the estimate without discussion with management.

Welded recycled part assemblies may require "trim time" to remove excess parts or material. Trim time, if applicable in the market area, is shown in hours.

In the event of an air bag deployment, the Auto Estimatics Inspector should review the estimatics vendor's air bag matrix to determine which component parts require replacement. It is our policy to use new, original equipment manufacturer (OEM) seat belts and air bag component replacement parts. If it is determined that new OEM parts are no longer manufactured and thus unavailable, quality recycled seat belts and air bag component parts can be considered.

When estimating quality recycled steering and suspension components or assemblies, consider those items subject to wear and replace if necessary.

Only undamaged recycled parts should be considered as replacements for steering and suspension components or assemblies.

3. Non-OEM Parts

For guidelines using non-OEM parts:

SEE: ACM - Non-OEM/Recycled Parts CPG 2700-270, Estimating

a. Identify all non-OEM parts on the estimate with a double asterisk (**).

b. If the estimate is not sent electronically to the claim representative or processor, attach the appropriate state-specific Non-Original Equipment Replacement Parts Information form to the estimate. (This form is available on the State Farm Forms site under P&C Claims, Auto, Repair Facility.)





c. Use only non-OEM part vendors who have signed State Farm's Non-Original Equipment Manufacturers Parts Supplier Criteria form (160-3036).

Both OEM parts and non-OEM parts are listed as line items. Non-OEM parts are distinguished by double asterisks (**). The part prices shown in the Parts column do not require a markup.

4. New OEM

List OEM parts as line items.

Appropriate new part discounts are applied in the calculation portion of the estimate.

Messages

After concluding the damage entry section (handwritten or computerized), explanations or special instructions to the repair facility are written on the estimate. Note open items or possible hidden damage on the EFS. This may determine how any supplement will be handled later.

Repair Time Allowances

Labor time involved in performing repairs, including refinishing, falls into two categories; flat rate time and judgment time.

Flat Rate Time

Flat rate time:

1. Is published in various printed and electronic sources.

2. Is developed through the use of historical data, time studies, and input from various sources.

3. Generally applies to removal and installation of parts and refinishing.

4. Does not apply to labor involved in straightening or repairing parts.

It is State Farm's position that published flat rate times provide a generally accepted basis for the time involved in replacement and refinishing operations. While, in some cases, we may disagree with published flat rate times, it is our general policy to include these times in our estimates and to accept them in estimates prepared by repairers.






Judgment Time

Judgment time applies when a damaged part is to be repaired through straightening, welding, adjustment, etc. It is recognized that repairers possessing advanced skills and more sophisticated equipment may perform the repair process in less time; repairers possessing lesser skills and less sophisticated equipment may require greater time. Auto Estimatics Inspectors and, in some cases claim representatives, are trained to calculate judgment time based on what is competitive in the local market to repair the vehicle in a quality manner.

Supplement Requests

Supplemental requests should be directed to the appropriate estimating unit or centralized supplement desk for processing. The Estimatics department is the primary contact for these types of requests, and will be responsible for follow up with the individual repair facility.


On rare occasions, a claim representative may receive and authorize a supplemental payment. In these instances, the approved supplement should be communicated to the appropriate estimating unit or supplement desk for processing.

While exceptions will occur, experience indicates that the original judgment time expressed by Auto Estimatics Inspectors should be sufficient to meet the needs of the ordinary repair process. If the decision is to disallow the request for additional judgment time or other items, and the repairer insists upon an additional charge, the claim representative has the responsibility for immediately contacting the vehicle owner to explain the basis for the Company's position.

The vehicle owner should be made aware of any additional amount they may be called upon to pay. It is recommended the claim representative become thoroughly familiar with the Motor Vehicle Repair Cost Policy. This policy addresses the issues of reasonable costs and necessary repairs.

Calculations

On handwritten estimates, total the Parts, Labor, Refinish Labor, and Sublet columns. Transfer the amounts to the Calculation section.

Local management will provide current prevailing competitive price (PCP) information to the Auto Estimatics Inspector.





State law may require a different procedure. In the event of a conflict between state law and these guidelines, state law controls.

Betterment

Some states have specific laws or regulations that deal with betterment, usually found in fair claim practice laws or regulations. Document betterment recommendations on the estimate. Betterment recommendations are to be reviewed with the claim representative/processor before releasing the estimate. All betterment recommendations require an explanation on the EFS. The Estimatics Team Manager/Claim Team Manager will provide the appropriate betterment guidelines.

Replacement of Brake Parts

Throughout the years, the construction of brake pads, shoes, rotors, and drums have changed. Manufacturers now recommend replacing brake pads or shoes and resurfacing rotors or drums as a set when one side is damaged.

To assure safe repairs are completed, use the following procedures when replacing brake parts:

1. Replace brake pads or shoes as a set even if only one side is damaged.

Note: Betterment should not be taken on pads or shoes unless there is substantial wear that can be documented.

2. Resurface rotors or drums as a set.

3. Replace rotors beyond tolerance.

The cost of both pads, shoes, rotors, or drums should be included and paid in the estimate.

Prior Damage

Show prior damage associated with a particular line item. All prior damage recommendations require a note on the estimate and an explanation on the EFS. Some states may require an itemized estimate.





Review Estimate With Repairer

Review the estimate with the repair facility owner or manager on non-drive assignments. Discuss any differences and attempt to reach an agreement for the cost of repairs.

We are under no obligation to write estimates to meet the demands of all repairers. However, our estimate should be acceptable to most repair facilities in the local market area. For additional guidelines:


Photographs

Photographs provide file documentation. The number of photographs necessary to support the estimate will vary depending on the extent of damage. Review the EFS to determine whether the claim representative has requested additional photographs be taken to document other aspects of the claim.

Begin by taking one or two overview photograph(s) that show the damaged area and include the license plate for identification purposes. Take additional photographs as needed to document the damage.

It is not always necessary to photograph inner body panels, interior trim, or frame rail damage if the overview photographs logically support such damage. One photograph may be adequate if the damage is visible and supports the estimate.

Label all photographs. Some photographs may require additional comments or explanations.

Tow Bills/Invoices

If necessary, tow bills or miscellaneous invoices obtained at the time of inspection can be scanned into the claim file images.

Customers occasionally provide receipts for temporary repairs. When appropriate, show a credit for the amount of such repairs and forward the receipts to the claim representative/processor for handling.





Underwriting Reviews

Provide the claim representative, processor, or Estimatics Team Manager/Claim Team Manager underwriting review information on the EFS with a photograph if appropriate. For underwriting categories:

SEE: CPG 3025-230, Underwriting Review

Activity Log

The EFS is the Auto Estimatics Inspector's primary means of communication in the claim file. When necessary, the estimatics coordinator or support person will enter the Auto Estimatics Inspector's comments into the claim activity log. Comments may sometimes be lengthy. It is important to:

1. Include the date, time, and initials on all entries.

2. Provide concise and professional comments.

3. Avoid using abbreviations.

Estimate Distribution/File Order

Drive-In Estimates

1. Make appropriate comments on the EFS.

2. Print copies of the estimate for the customer and repair facility.

3. Complete the Frame/Unibody Damage Analysis Sheet if appropriate.

4. Process photographs.

5. Attach any appropriate tow bills or invoices.

6. Forward contents to the claim representative on drive-in duty.

Non-Drive Estimates

1. Make appropriate comments on the EFS.

2. Print a copy of the estimate for the repair facility.

3. Complete the Frame/Unibody Damage Analysis Sheet if appropriate.





4. Process photographs.

5. Attach any appropriate tow bills or invoices.

6. Forward contents to the estimatics coordinator.

Note: Do not use forms without State Farm supply numbers or those that do not appear in the Claim Procedures Guide (CPG) unless directed to do so by the Estimatics Team Manager/Claim Team Manager. The use of locally created forms should be reviewed with and approved by the Estimatics Consultant.

Total Losses

Alert the claim representative or estimatics coordinator of any potential total loss circumstance as soon as possible, using the EFS, ECF, or phone as directed by the Estimatics Team Manager/Claim Team Manager.

It is not always necessary to complete an itemized estimate on obvious total loss vehicles unless mandated by state law. If a complete estimate is not written or required by state law, briefly describe the damage and identify damaged items not readily visible in the photographs.

For all total losses:

1. Take four corner views of the vehicle.

2. Photograph any damage or items that may affect vehicle value.

Conditions that result in an above or below average rating typically require a separate photograph if not visible in the initial four corner views. Photographs of the engine and interior are not needed unless the condition or appearance of these items is atypical and might affect the value of the vehicle.

Complete the Vehicle Description section of the Vehicle Inspection Report. (This report is available on the State Farm Forms site under P&C Claims, Auto, Repair Facility.)

Forward the Initial Salvage Entry Sheet to the person specified by management.

SEE: CPG 2700-270, Estimating

Supplements

The Auto Estimatics Inspector should complete only supplements listed on the Non-Drive or Supplement/Add Order Log. Follow any instructions provided by the Estimatics Team Manager/Claim Team Manager.





The Estimatics Team Manager/Claim Team Manager will provide procedures for approving supplement requests over the phone. For supplements authorized over the phone:

1. Review the repair facility's request.

2. Review the original estimate, photographs if appropriate, and any previously authorized supplements.

3. Contact the repair facility and discuss the supplement request. After a brief discussion with the repair facility, return the request to clerical for a non-drive inspection.

4. Agree on the total amount of the supplement.

5. Produce the supplement estimate.

6. Include comments on the Supplement Request Fax Sheet. Comments should indicate the supplement request was:

a. Not a candidate for approval over the telephone - set up as non-drive.

b. Approved - forward supplement to Claims for payment.

c. Denied - document in detail the reason the supplement request was denied.

7. Return to support personnel.

For non-drive supplement assignments:

1. Review the original estimate and photographs, and previously authorized supplements.

The Auto Estimatics Inspector handling the supplement is responsible for verifying the vehicle is being repaired according to the original estimate.

2. Report deviations to management.

3. Inspect the supplemental damage.

4. Take appropriate photographs including an overview photograph of the vehicle under repair.

5. Prepare a supplemental estimate.

6. Complete the Auto Estimatics Inspector's Comments section of the Supplemental Request Assignment Sheet.

For supplemental procedures:





SEE: CPG 2700-270, Estimating

During a non-drive inspection, a repairer may request a supplement on another vehicle already under repair. Review the repair facility's request and call the Estimatics Team Manager/Claim Team Manager or estimatics coordinator to determine how the supplement will be handled.

ACM April 25, 2007






Paintless Dent Repair (PDR) is an industry recognized repair process that involves the removal of hail dents or other types of damage from metal exterior surface panels without disturbing the vehicle's finish. In most cases, this procedure involves the use of specialized tools to apply pressure to the backside of the panel to remove surface imperfections. Other techniques may be used to repair damage from the topside of the panel, depending on the size and location of the damage. By using either of these techniques, the technician is able to restore panel appearance which eliminates the need for refinishing the panel's surface area.

The PDR process is often used to repair hail damage or other similar dents that occur when an outer panel strikes (or is struck by) an object that has not compromised the finish of the panel. Since the outer finish of the panel has not been disturbed, it eliminates the refinishing process and may allow for repairs to be completed in a more timely and cost effective manner.

Select Service® Providers

Select Service repairers:

1. Agree that if PDR services are available in the local market, it either has PDR capability on-site or is readily available.

2. Will use the PDR method of estimating and repair on eligible vehicle damage.

3. Agree to use the prices on the State Farm® PDR Pricing Matrix for PDR services.

4. Agree to restore any corrosion protection materials, caulking, or under panel adhesives if disturbed during the PDR process.

5. Agree that PDR repairs will be completed without drilling or otherwise creating access holes or damaging or modifying structural components.

PDR Only Provider Listings

Local estimatics management is responsible for identifying market areas that provide PDR services. In addition to developing these market areas, they will also need to establish a list of PDR providers (national and local) that are available to assist customers who are in need of repairs. Management should review and update the provider listings at least annually to ensure that accurate information is being maintained.

National PDR services are offered by a number of large companies that provide training and support to their technicians. While some of these companies may not have a local presence, those that have agreed to the State Farm Paintless Dent Repair Agreement will provide services in areas where a large number of hail claims have been reported. These individuals may collaborate with local repair facilities or work from temporary locations until the volume of repairs are handled and PDR services are no longer needed.





The Corporate Estimatics department will maintain a listing of national providers as well as the State Farm PDR Pricing Matrix.

The State Farm PDR Pricing Matrix and the State Farm Paintless Dent Repair Agreement are available on State Farm Forms under P&C Claims, Auto, Repair Facility.

• Select the appropriate State Farm Paintless Dent Repair Agreement.

We recommend that estimatics management use the National/Local Providers sheet to list their PDR providers and make them available to claims and catastrophe services personnel as needed. It may also be appropriate to include these listings on the zone's intranet site, as well as incorporating them into the annual catastrophe plan. To invite potential repairers onto the program, send a PDR Offer to Participate Letter (Exhibit 1) that includes the State Farm Paintless Dent Repair Agreement and a copy of the State Farm PDR Pricing Matrix.

A PDR only repairer that signs and returns the State Farm Paintless Dent Repair Agreement is applying to be a provider of PDR services under the agreement. State Farm reserves the right to accept or reject any application. If accepted, a copy of the State Farm Paintless Dent Repair Agreement will be returned to the provider along with a PDR Notification of Acceptance Letter (Exhibit 2) indicating the effective date of the agreement.

When a repairer's application is not accepted, notify the repairer of that decision in writing by sending a PDR Non-Acceptance Letter (Exhibit 3 ).

The State Farm Paintless Dent Repair Agreement can be terminated by a repairer or by State Farm at any time, and for any reason. Regardless of the reason(s), when the relationship has ended, send a PDR Agreement Termination Letter (Exhibit 4 ). If a repairer is not meeting the terms of the agreement, they should be considered for removal from the program.

Repair Pricing and Estimating Procedures

The State Farm Paintless Dent Repair Agreement includes a pricing matrix that participating local and national providers have agreed to when performing vehicle repairs. In most cases, the PDR estimate will be prepared by staff personnel using one of the approved estimating vendor products available in their respective area. However, there may be occasions where customers secure a PDR estimate from a local or national provider and submit to us for review. If the vehicle is capable of being repaired using the PDR process and the estimate is within the guidelines established in the pricing matrix, claim personnel may handle the claim based on the amount estimated.

It is important to establish whether or not the vehicle can be repaired using the PDR process before settlement is made. If an inspection reveals that the vehicle is not a candidate for PDR repairs, a conventional repair estimate should be prepared and used as the basis for settlement. In





market areas where PDR services are not available, we may need to prepare or approve an estimate based on conventional repairs.

If the individual repair situation warrants a combination of PDR and conventional repairs, the estimate should include allowances for both processes as appropriate. By signing the State Farm Paintless Dent Repair Agreement, providers agree not to require their customers to take their vehicles to multiple repair facilities.

State Farm is committed to paying fair and reasonable amounts for repairs when the PDR process is used. While we do not require use of a specific repair facility, we will provide the names of local and national providers that agree to the terms and conditions of the State Farm Paintless Dent Repair Agreement. Customers will be provided with detailed appraisals upon inspection of their vehicles, and we are committed to working with reputable companies that provide high quality repairs at competitive prices.

Before an estimate is prepared, the staff appraiser will need to determine if the type of damage present on the vehicle is capable of being repaired using the PDR process. This may include an analysis of the size and location of the damage, available access to panels, ease of removal of the vehicle's ornamentation and trim, etc. Providers who participate in the State Farm PDR program agree to restore any corrosion protection materials, caulking, or under panel adhesives if disturbed during the repair process. When accessing damaged panels, providers agree that repairs will be completed without drilling holes or damaging or modifying structural components.

Customer Benefits

If the vehicle is a candidate for PDR repairs, when the estimate is prepared, a Company associate may provide information to the customer about the benefits of PDR, which include:

1. Preservation of the vehicle's finish.

2. Less refinishing of adjacent, undamaged panels to achieve color match.

3. An expedited repair.

4. A limited lifetime repair guarantee and promise of customer satisfaction.

Provide all customers with a Paintless Dent Repair - State Farm's Promise to You brochure (Exhibit 5), which includes additional information about the repair process and our promise of customer satisfaction.

As with other State Farm repair programs, the customer retains the right to choose a repair facility.

Program Administration





The Estimatics Section Manager is responsible for administering the PDR program. This begins with identifying potential PDR markets and establishing the list of participating providers. The Estimatics Section Manager's responsibility continues through the application for participation and selection process, as well as monitoring the provider's performance and compliance with the State Farm Paintless Dent Repair Agreement.

Exhibit 6 includes a list of questions and answers that may come up while administering the PDR program.

Settlements

If the vehicle owner elects not to repair the vehicle and requests a cash settlement, payment should be made on the basis of the PDR estimate – provided the vehicle is capable of being repaired using the PDR process. If the PDR process is not feasible, a conventional estimate should be prepared and settlement should be made based on that amount.

If the vehicle owner requests a settlement on the basis of a conventional estimate and the vehicle is capable of being repaired using the PDR process, prepare a PDR estimate and offer to settle the claim based on that amount. If the customer does not agree with the settlement offer based on the estimate we prepare, ask the vehicle owner to obtain competitive PDR bids. If the customer asks for assistance in identifying PDR repairers for their area, provide the names of available program facilities.

When making a payment to or on behalf of a policyholder or to a third party insured where we are not paying a Select Service or PDR repairer directly, mail to the policyholder the Payment Notification Letter (available in the Auto Damage Service Programs article). The claim associate should review the content of the letter with the policyholder and document the claim file.

Supplement Handling

Requests for supplements should be reviewed in a manner that is consistent with the terms of the State Farm Paintless Dent Repair Agreement. If the original PDR estimate is competitive and consistent with the agreement, no additional amount should be due. If additional damage is identified, it may be necessary to create an inspection assignment to resolve any outstanding items.

In the event of a disagreement, we may ask the vehicle owner to obtain competitive PDR bids.

Agent's Draft Authority





Agents located in areas where Select Service or staff estimating services are available should not use their draft authority for comprehensive and collision claims. Claims of this nature should be reported to Auto Claim Central (ACC) and handled under the Auto Damage Service Programs.

SEE: ACM - Agents Draft Authority

Exhibit 1 - PDR Offer to Participate Letter

(Date)

(Repair Facility) (Address) (City/State/ZIP)

Subject: State Farm® Paintless Dent Repair Program

Dear (Repair Facility Manager/Owner):

Enclosed is a copy of State Farm's Paintless Dent Repair Agreement. If you have an interest in being included in this program, you can apply to participate by signing the State Farm Paintless Dent Repair Agreement and returning it to my attention. Please retain a copy of the signed agreement for your records.

As part of the PDR program, you will be agreeing to a pricing matrix as established by State Farm. This matrix will serve as the basis for estimates we prepare in conjunction with the PDR repair process. A copy of the matrix is attached for your review. Please understand that State Farm reserves the right to accept or reject any application for participation in the program.

If you have questions about the PDR program or the enclosed State Farm Paintless Dent Repair Agreement, please contact me.

Sincerely,

Estimatics Section Manager (Address) (Phone)

Enclosures: State Farm Paintless Dent Repair Agreement

State Farm Insurance PDR Pricing Matrix

Exhibit 2 - PDR Notification of Acceptance Letter





(Date)

(Owner/Manager) (Repair Facility) (Address) (City/State/ZIP)

Subject: State Farm® Paintless Dent Repair Program - Notification Letter


You have been accepted as a participant in State Farm's Paintless Dent Repair program. We are including a signed copy of the State Farm Paintless Dent Repair Agreement for your records.

(Name/title/telephone number) is our administrative coordinator for the PDR program in this area. Please contact (first name) if you need assistance resolving repair issues or have questions about the program. We will notify you of any program changes or updates to the pricing matrix.

We look forward to working with you as we meet the repair needs of our mutual customers.

Sincerely,


Enclosure: State Farm Paintless Dent Repair Agreement

Exhibit 3 - PDR Non-Acceptance Letter

(Date)

(Owner/Manager) (Repair Facility Name) (Address) (City/State/ZIP)







While we appreciate your interest in State Farm's Paintless Dent Repair program, we are not accepting your application at this time.

Sincerely,


Exhibit 4 - PDR Agreement Termination Letter

(Date)

(Manager/Owner) (Service First Repairer) (Address) (City/State/ZIP)


Dear (Manager/Owner):

As of (date), State Farm is terminating the Paintless Dent Repair Agreement between (name of repair facility) and State Farm.

Sincerely,


Exhibit 5 - State Farm's Promise Brochure

PAINTLESS DENT REPAIR STATE FARM'S PROMISE TO YOU

What Is PDR?

Paintless Dent Repair (PDR) is an industry recognized repair process that involves the removal of hail dents or other types of damage from a vehicle’s exterior surface panels without disturbing the finish.





How Does It Work?

In most cases, this procedure involves the use of specialized tools to apply pressure to the backside of the panel to remove surface imperfections. Damage may also be repaired by bonding a "tab" or other device to the exterior of the panel and pulling the dent from the topside. By using either of these techniques, the technician is able to restore panel appearance, thus eliminating the need for refinishing the panel's surface area.

When Can It Be Used?

The PDR process is often used to repair hail damage or other similar dents that occur when an outer panel strikes (or is struck by) an object that has not compromised the finish of the panel. Since the outer finish of the panel has not been disturbed, it eliminates steps in the refinishing process and may allow for more timely repairs.

The ability to repair vehicles using PDR requires that the technician be able to access the backside of a dent. Some repairers drill holes for access. We do not recommend PDR if drilling is necessary.

Who Performs Paintless Dent Repair?

PDR services are offered by a number of local and national companies that provide technical training and support to associated technicians. National companies may not have a local presence, but they often send "response teams" to areas where a large number of hail claims have been reported. These teams may work out of temporary locations, performing repairs until PDR services are no longer needed.

We believe it is to your benefit to have repairs completed by companies and repair facilities that have agreed to and follow the State Farm Paintless Dent Repair Agreement. If you have not selected a repairer and would like to review a listing of providers, ask your claim representative for additional information.

State Farm's promise to you

State Farm will guarantee your satisfaction with PDR work for as long as you own your car, when:

• You authorize repairs by a repairer we agree upon.

• PDR is listed on your estimate.

• We pay for those repairs.

If a problem with PDR work ever develops, additional necessary repair work will be done to your satisfaction and at no additional cost to you.





Final decisions regarding any repairs to your vehicle are made by you, the vehicle owner.

Exhibit 6 - Questions and Answers

Q. Who should be considered as a participant in the State Farm Insurance® Paintless Dent Repair (PDR) program?

A. Participants in the PDR program may include:

1. National PDR providers who have signed the National State Farm Paintless Dent Repair Agreement.

2. Local PDR providers who have signed the State Farm Paintless Dent Repair Agreement.

3. Local auto body repair facilities that have PDR capability and have signed the State Farm Paintless Dent Repair Agreement.

Q. How are providers selected to participate in the program?

A. PDR providers wishing to participate in the program will be provided a copy of the State Farm Paintless Dent Repair Agreement, State Farm Insurance PDR Pricing Matrix, and an invitation letter. Local estimatics management will be responsible for determining which PDR providers will be included in the local market list of providers.

Q. How are repairs handled when both conventional and PDR repairs are needed?

A. A single estimate that includes both repair methods will be prepared. Repairs involving combination PDR/conventional methods will be performed by a State Farm Select Service repair facility unless specifically requested by the vehicle owner. The customer is not responsible for moving the vehicle during the repair process.

Q. What happens if corrosion protection material is disturbed during the repair process?

A. If any corrosion protection materials, caulking, or under panel adhesives are disturbed during the repair process, the provider agrees to restore based on the State Farm Insurance PDR Pricing Matrix. This issue is addressed in the PDR agreements.

Q. Is it possible to conduct PDR repairs on vehicles that have had previous PDR repair work performed?

A. If the original repairs were done properly, PDR repairs can be considered.

Q. What if the insured approves of the repair facility drilling or creating a hole for access?

A. While we do not endorse drilling or creating access holes to facilitate PDR repairs, customers are free to choose how their vehicles will be repaired. We should explain that a conventional repair estimate will be prepared and used as the basis for settlement.





Q. Who is responsible for maintaining the PDR provider listing?

A. The national listing will be maintained by Corporate Property and Casualty (P&C) Claims. Local market listings will be maintained by zone management.

Q. Will local management need to secure a State Farm Paintless Dent Repair Agreement from national providers who are operating in their local market?

A. No. Corporate P&C Claims will obtain and maintain Agreements signed by national providers.

Q. Do claims involving PDR repairs qualify for payment under the Agents Draft Authority (ADA) program?

A. Claims involving PDR repairs can be handled under ADA if the claim qualifies for payment under the zone's ADA procedures.

Questions regarding ADA procedures should be directed to the zone estimatics Section Manager or consolidated claims management.

Q. In catastrophe situations, what happens when national PDR companies are no longer present and not available to provide PDR repairs?

A. Local providers should be able to provide PDR repairs if no national vendors are available. In markets where national PDR providers are the only providers of PDR services, they may be called back to the area to assist customers. If PDR services are no longer available, conventional repairs will be completed. This may require supplements for those customers with PDR repair estimates who have not yet had their vehicles repaired.

ACM August 31, 2005

Betterment

Betterment occurs when the repair of a vehicle or vehicle part improves the condition and value of that property in comparison to its condition before the loss.

Many insurance policies provide that an owner of property is responsible for repair costs equivalent to any increase in property value. Historical support for the concept of betterment is





rooted in the notion that persons should not be able to increase the value of their property, at another’s expense, as the result of an accident.

Betterment is applicable to both third party and first party claims. In third party situations, betterment is considered when assessing a claimant’s damages. When considering an owner’s claim under a first party coverage, the claim representative must understand policy language, which sets forth the contractual basis for applying betterment in appropriate situations. In either circumstance, the claim representative must also be aware of applicable state laws and regulations that deal with the subject of betterment.

Examples of state laws and regulations:

1. Some states have specific laws or regulations that deal with betterment, usually found in fair claim practice laws or regulations.

2. Most states require that betterment must be discernible, measurable, itemized, and specific as to dollar amount.

3. Some states require that explanations of betterment be in writing.

4. Some states only allow application of betterment to items that are usually subject to wear and tear.

5. Some states limit the percentage or dollar amount of betterment.

6. Several states specify that betterment can only be applied if repairs increase the value of the affected vehicle before the loss.

The claim file should reflect how betterment decisions are made, including:

1. The parts or items involved

2. Measurements

3. Opinions of knowledgeable persons

4. Dollar amounts attributed to betterment

5. A record of discussions with affected policyholders or claimants

Labor, material costs, and tax are included in betterment calculations.

Application of Betterment

Certain vehicle components are constructed of materials that deteriorate or wear during normal vehicle usage. These parts are not expected to last for the life of the vehicle and eventual replacement is an anticipated maintenance expense. Normal wear and tear is not insurable. When





worn or damaged items are replaced with new parts as a result of an accident, it is the responsibility of the claim representative to determine if betterment is involved and whether betterment should be applied. The claim representative may need to contact a knowledgeable source, dealer, or independent appraiser to obtain specialized information.

When a part is replaced with a used, rebuilt, or reconditioned part of equal or better quality, no deduction for betterment shall be made.

When the damaged part was expected to have a useful life expectancy equal to that of the vehicle, no betterment deduction should be made, even though replacement is with a new part.

All betterment deductions must be discernible, measurable, itemized, and fully explained to the vehicle owner. All deductions for betterment must be clearly outlined and specified in the claim file. In every case, the actual condition of the property to be replaced shall take precedence over any suggested guideline. Claim representatives must adhere to all applicable laws and regulations that deal with the subject of betterment.

Adjusting Claims With Betterment

Consider the following when adjusting claims involving betterment. This information may be appropriate for use (depending on applicable state laws and regulations).

Batteries Paint

Engines (New) Plastic and Other Synthetic Windows

Mechanical Parts Tires

Mufflers and Tail Pipes Tops (Convertible, Vinyl, or Sport Fabric of all Types)

Batteries

The percentage of replacement cost is based on the age of the battery and warranted useful life. Investigate as to useful life if the warranty is not known. No betterment the first 3 months. After 3 months, prorate by month from date of purchase (75% maximum).

Some retailers sell and will replace a "lifetime" battery at no charge while the purchaser owns the vehicle. No betterment should be deducted for these batteries contingent on proof of purchase.





Engines (New)

Apply betterment when it can be determined that replacement with a new engine will measurably increase the value of the vehicle. Do not apply betterment if a used, rebuilt, or reconditioned engine is used.

Note: Contact a knowledgeable source, dealer, or independent appraiser to help determine if betterment applies.

Mechanical Parts

Certain parts such as transmissions, shock absorbers, disc brake pads, brake linings, belts, hoses, and cables will sometimes show evidence of substantial wear or deterioration before the loss.

If the worn or deteriorated condition is of a serious nature, a reasonable deduction for betterment may be applied. No deduction for betterment should be applied when it can be determined the damaged part would have served adequately for the remaining useful life of the vehicle.

Mufflers and Tail Pipes

Determine the useful life of the affected parts. Consider any special manufacturers and non-OEM extended warranties. If the muffler had rust holes before the loss, it had no value and the cost of replacement is not covered by the policy.

A reasonable deduction for betterment may be applied on the basis of age and condition. No deduction for betterment should be applied when it can be determined the damaged part would have served adequately for the remaining useful life of the vehicle.

Paint

Apply betterment on complete paint jobs when it can be determined the paint job will measurably increase the value of the vehicle.


Betterment does not apply to partial paint jobs.





Plastic and Other Synthetic Windows

Determine the condition at the time of loss. If the deterioration is serious, a reasonable deduction for betterment may be applied.

Tires

Tread Gauge Basis

The percentage of replacement cost is based on the measurement at the point of greatest wear. There are 2 scales on the gauge:

1. The scale on the left indicates the percentage of tread worn from the tires.

2. The scale on the right indicates the amount of remaining tread measured in 32nds of an inch.

Percentage as read from the gauge. No more than 80% of the replacement cost should be deducted as betterment.

Most standard passenger car tires have 11/32 of tread depth; premium tires have 14/32. If a question exists, the tire dealer can supply information as to original tread depth.

Mileage Basis

When the use of a tire gauge is not possible, tire wear may be determined on a mileage basis.

The percentage of replacement cost is based on mileage driven and useful life of tire. Where there is a specific mileage warranty involved, prorate on that basis. If not specified, contact tire dealer to determine the mileage rating.

Prorate replacement cost on basis of remaining warranty period. No more than 80% of the replacement cost should be deducted as betterment.

Tops (Convertible, Vinyl, or Sports Fabric of all Types)

Apply betterment when it can be determined the replacement of the top will measurably increase the value of the vehicle.


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