H.B 1131 was enacted to prevent insurers from owning collision repair shops – known as tied shops – in Texas. Allstate and Sterling appealed on the basis that the bill restricted the dormant Commerce Clause and first amendment rights of the U.S. Constitution
After a bench trial, the circuit court rejected Allstate’s dormant Commerce Clause argument, but found that certain provisions of the statute did violate the First Amendment. This is also the conclusion of the U.S. Court of Appeals.
The key provisions of H.B. 1131 accomplished two broad reforms: prohibiting future tied shops from opening in the state (while exempting existing relationships between Allstate and Sterling) and establishing a set of rules to govern the recommendation of these grandfathered Sterling shops. The statute requires an insurer to offer the same referral arrangement it has with its tied shop to at least one unaffiliated body shop.
When this suit was filed in 2003, Allstate claimed that H.B. 1131 precluded Sterling, an interstate business, from opening more body shops in Texas, thus violating the Dormant Commerce Clause. The courts have not accepted this argument and this aspect of H.B. 1131 has been upheld.
Allstate further contended that its first amendment rights were impeded by making Allstate’s promotion of Sterling contingent on its promotion of other body shops. In affirming this portion of H.B. 1131, the court acknowledged that these limitations could deprive consumers of beneficial information.
Since evidence was revealed that the majority of Allstate’s customers chose not to avail themselves of Sterling’s services, the court felt that an exclusive recommendation does not necessarily mislead consumers into believing that Sterling is superior to other facilities nor that the utilization of the recommended shop is required. The district court concluded, and the Court of Appeals affirmed, that the Allstate script recommending Sterling is not false or misleading.
Furthermore, the court stated that “the state defendants have not shown that restricting truthful speech about the benefits of using a tied shop benefits
Tom Kelley, spokesman for the defendants Abbott et al., said that the ruling had the effect the office was looking for in terms of prohibiting tied shops. The fact that the court affirmed Allstate’s right to promote Sterling Collision Centers to its customers was deemed secondary. The main objective of the attorneys was to make sure that the statute be declared constitutional with respect to prohibiting future acquisitions of body shops by insurers.
On the other side, Mike Siemienas, speaking for the insurer, stated: “Allstate and Sterling are pleased that the United States Court of Appeals for the 5th Circuit agreed with our position that H.B. 1131 is unconstitutional and violates our First Amendment rights to recommend Sterling repair facilities to our customers.
“We respectfully disagree with the portion of the 5th Circuit’s ruling upholding the remainder of H.B. 1131. We believe that those provisions violate the commerce clause of the U.S. Constitution. These provisions allow the State of Texas to limit our right to conduct fair and competitive commerce in Texas in order to protect local body shops from increased competition. In doing so, the Court effectively denies Texas customers choice in their selection of collision repair facilities.
Allstate supports customer choice when choosing a repair facility, and we believe Sterling should be an option available to all consumers. We will review our options to determine if we will appeal this ruling.
Once again, pending an appeal by one side or the other, H.B. 1131 remains uninstated.