Allstate Ins. v. Serio

• Decision Date: 01 August 2000
• Docket Number: Docket Nos. 00-7769
• Parties: (2nd Cir. 2001) ALLSTATE INSURANCE COMPANY, GOVERNMENT EMPLOYEES INSURANCE COMPANY, GEICO CASUALTY COMPANY, GEICO GENERAL INSURANCE COMPANY and GEICO INDEMNITY CO., Plaintiffs Appellees, v. GREGORY V. SERIO, in his capacity as Acting Superintendent of Insurance of the State of New York, Defendant-Appellant (L), 00 7780 (CON)
• Court: U.S. Court of Appeals — Second Circuit

Page 143

261 F.3d 143 (2nd Cir. 2001)

ALLSTATE INSURANCE COMPANY, GOVERNMENT EMPLOYEES INSURANCE COMPANY, GEICO CASUALTY COMPANY, GEICO GENERAL INSURANCE COMPANY and GEICO INDEMNITY CO., Plaintiffs Appellees, v. GREGORY V. SERIO, in his capacity as Acting Superintendent of Insurance of the State of New York, Defendant-Appellant

Docket Nos. 00-7769 (L), 00 7780 (CON)

August Term, 2000

UNITED STATES COURT OF APPEALS, SECOND CIRCUIT

Argued: March 5, 2001

Decided: July 23, 2001

The New York State Department of Insurance appeals from a decision of the United States District Court for the Southern District of New York (Casey, J.) enjoining it from enforcing New York Insurance Law §2610(b), and certain regulations promulgated thereunder. The district court found the challenged provisions to be unconstitutional regulations of commercial speech.

Questions Certified.

PENNY SHANE, Sullivan & Cromwell, NY, NY for Plaintiff-Appellee Allstate Insurance Co. (Ellen V. Holloman on the brief).

WILLIAM P. MALONEY, Maloney & Porcelli, NY, NY for Plaintiff-Appellee GEICO.

DEON J. NOSSEL, Assistant Solicitor General, for Eliot Spitzer, Attorney General of the State of New York (Michael S. Belohlavek, Deputy Solicitor General on the brief).

Eugene R. Anderson, Anderson, Kill & Olick, NY, NY for Amicus Curiae United Policyholders.

Before: WALKER, Chief Judge, OAKES, and CALABRESI, Circuit Judges.

CALABRESI, Circuit Judge:

The New York State Department of Insurance¹ ("the Department") appeals from a judgment of the United States District Court for the Southern District of New York (Casey, J.) enjoining it from enforcing New York Insurance Law §2610(b), as well as "rules and regulations promulgated thereunder," against plaintiffs Allstate Insurance Co. ("Allstate") and GEICO General Insurance Co. ("GEICO"). Allstate Ins. Co. v. Serio, No. 97 CIV. 0670(RCC) 2000 WL 554221 at *26 (S.D.N.Y. May 5th, 2000). The district court held that §2610(b), which prohibits auto insurance companies from giving insureds unsolicited referrals to preferred repair shops, unconstitutionally restricts commercial speech, in violation of the First Amendment. In reaching this conclusion, the district court also deemed unconstitutional (1) "Circular Letter 4," a letter issued by the Department of Insurance articulating its interpretation of §2610(b), (2) a settlement agreement executed by Allstate and the Department after Allstate was found by the Department to be in violation of §2610(b), and (3) the Department's rejection, pursuant to §2610(b), of a proposal by GEICO to include in its Automobile Casualty Manual a "preferred repairer" clause.

The Department insists that §2610(b) withstands constitutional scrutiny under prevailing commercial speech doctrine, and that, in any event, the district court should have abstained so that the New York courts would have had an opportunity to construe §2610(b) before the federal courts assessed its constitutionality. In addition, the Department contends that even if certain applications of the statute violate the Constitution, the district court's injunction, which enjoined any enforcement of §2610(b) against plaintiffs, is overbroad.

We have concluded that we should certify the following questions to the New York Court of Appeals: (1) Is Circular Letter 4 a valid interpretation of New York Insurance Law §2610(b)? (2)Under §2610(b), can the Department of Insurance properly impose a settlement of the sort reached by the Department with Allstate? (3) Under §2610(b), can the Department of Insurance prohibit the "preferred repairer" clause proposed by GEICO for its Automobile Casualty Manual? (4) If any of these Department actions is permitted under Insurance Law § 2610(b), is that statute an unconstitutional regulation of commercial speech under Article I, Section 8 of the New York Constitution?

BACKGROUND

This case arises out of the State of New York's effort to regulate "steering" - a practice sometimes employed by automobile insurance companies. Steering occurs when an insurance company induces a claimant to select a particular repair shop. Insurance companies engage in this practice because it saves them money; when a claimant is steered to a preferred repair shop,² the insurance company is spared the expense of sending out an adjuster to assess the damage to the claimant's vehicle. Generally, the insurance company does not feel the need to oversee the preferred repair shops' method of fixing the damage. Moreover, repair shops sometimes give insurance companies price breaks in exchange for having companies recommend them to claimants. Insurance companies assert that such practices redound to the benefit of claimants because the insurer is likely to have more information about repair shops than does the insured, and can, therefore, help the insured identify and contact competent, efficient, effective repair shops. Furthermore, insurers contend, when a vehicle is sent for repairs to a shop with which the insurance company has a steering agreement, the insurer guarantees the repair shop's work, thus conferring an additional benefit on claimants.

The State of New York, on the other hand, has expressed concern about steering because it feels that the establishment of such relationships between insurers and particular repair shops may be detrimental to claimants. Specifically, the Department has noted that under steering arrangements, "the repairs will be done by a firm that does not have to satisfy its customers to get more business, but, rather, has to satisfy an insurer, whose desires may be opposed to those of the claimants." Under these conditions, and in the absence of regulation, an insurer might coerce insureds to use repair shops that are less convenient, less competent, or otherwise less efficient than insurers might use if left to their own devices.³

A. The Statutory Scheme

In 1973, in an effort to combat steering, the New York State Legislature passed Insurance Law §2610(a). It reads: "Whenever a motor vehicle collision or comprehensive loss shall have been suffered by an insured, no insurer providing collision or comprehensive coverage therefor shall require that repairs be made to such vehicle in a particular place or shop or by a particular concern." NY Ins. Law §2610(a). The law was designed to preserve a claimant's right to choose the location where repair work will be done and to prevent insurance companies from penalizing insureds who do not use preferred shops.

In 1974, Insurance Law §2610(b) was passed. It prevents insurers from making unsolicited recommendations or suggestions to claimants that they have work done at particular repair shops. That provision states: "In processing any such claim (other than a claim solely involving window glass), the insurer shall not, unless expressly requested by the insured, recommend or suggest repairs be made to such vehicle in a particular place or shop or by a particular concern."⁴ NY Ins. Law §2610(b). This law, too, was designed to protect policyholders from steering. It aimed, however, at a more subtle form of the practice than did §2610(a). While subsection (a) prohibits insurers from explicitly requiring the use of given repair shops, subsection (b) is designed to reach conduct that might lead a vulnerable claimant to feel as if he or she were required to use a recommended repair shop.

An insurer who is deemed by the State Superintendent of Insurance to have violated one of these provisions is entitled to a hearing before the imposition of any penalty. NY Ins. Law §109(c). Insurers are required to submit to the Superintendent for approval any proposed policy form, and if the Superintendent disapproves of the form, the insurer is again entitled to a hearing. NY Ins. Law §2322(b). Final determinations by the Superintendent are subject to judicial review in an Article 78 proceeding. NY Ins. Law §326(a).

B. Enforcement of §2610(b)

In the early 1990s, in response to continued complaints about steering, the Department undertook a study of insurers' practices to determine whether insurers were complying with the anti-steering laws, and specifically with §2610(b). As a result of its investigation, the Department concluded that all of the insurance companies investigated were violating §2610(b).

Plaintiff Allstate was among those deemed to be in violation. Specifically, the Department concluded that Allstate's promotion of its "PRO (Priority Repair Option) Program" was unlawful. Under this program, Allstate employees were required, in dealing with claimants, to inquire whether the claimant had a repair shop to which she would like to bring her vehicle. If (and only if) the insured answered in the negative, the Allstate representative would ask whether the insured would like Allstate to recommend a repair shop in the area. If (and only if) the insured indicated that she would like such a recommendation, the insurer would recommend that the claimant go to a shop that was part of the PRO Program.⁵ In this way, Allstate hoped to circumvent the ban against unsolicited referrals.

The Department believed that by (1) prompting claimants to request referrals, (2) posting signs and brochures about the PRO Program in Allstate offices, and (3) advertising the fact that it guaranteed work performed at participant "PRO Shops" without explaining that the guarantee was required by law, Allstate was violating §2610(b). The Department communicated its view to Allstate. Allstate denied that its conduct transgressed §2610(b) and submitted to the Department a statement explaining its position. Unmoved by Allstate's explanation, the Department informed Allstate that it planned to impose a $100,000 penalty on the insurer unless Allstate agreed to revise its procedures.

A formal settlement between Allstate and the Department was reached and memorialized in a Settlement Letter ("the Settlement Letter"), executed on January 31, 1994. In it, Allstate denied having...