This all happens in California.
Driver D has an accident clearly caused by responsible party R. (No one disputes that R caused the accident.) There is some damage to D's car. A claim is filed with R's insurance. D gives them the contact information for his mechanic M.
R's insurance provider writes a check for several thousand dollars to M, enough to cover the repair and a rental car for the duration of the repair.
In the meantime, D has a mishap while parking, further damaging his car (in another area than the damage from the accident above), but causing no damage to anyone else's property.
D turns out not to need a rental car for the duration of the time his car will be repaired. D would like to get all the damage to his car repaired, and possibly some additional unrelated improvements. The check received by M is more than enough to cover this work.
The question: Would there be any sort of illegality (i.e. insurance fraud) or repercussions for either D or M if the money is used to fund repairs/improvements beyond the damage actually caused in the accident for which the claim was originally filed?