A New York law prohibiting insurance companies from recommending auto repair shops to their customers unless asked violates the First Amendment, a federal judge ruled. On May 5, 2000, U.S. district Judge Richard Conway Casey struck down the law in Allstate Insurance Co. v. Serio, 2000 U.S. Dist. LEXIS 6055 (S.D.N.Y. May 5, 2000).

    Section 2610(b) of New York insurance law provides that, in processing an insurance claim, "the insurer shall not, unless expressly requested by the insured, recommend or suggest repairs to be made to such vehicle in a particular place or shop or by a particular concern." Regulations interpreting the law even prevented insurance companies from distributing copies of the law to their insureds.

    Two insurance companies, Allstate Insurance Co. and Geico General Insurance Co., challenged the law in federal court, contending that it violated their free-speech rights. The state argued that the law was necessary to protect consumers from the coercive practice of "steering" -- requiring insureds to use certain repair shops that have special arrangements with insurance companies.

    The state contended that the statute did not violate the First Amendment because it only regulated conduct. The court easily rejected this argument, writing: "It is plain to the Court that the statute at issue regulates speech, not action or conduct. The only conduct that the State seeks to punish through the enforcement of Section 2610(b) is the communication and conveyance of a message."

    The insurance companies contended that the speech at issue was a mix of commercial and noncommercial speech. They further contended that the law, which restricted the speech based on its content, must therefore be subject to strict scrutiny. Content-based restrictions on noncommercial speech are generally presumed unable to pass constitutional muster under strict scrutiny. However, the state asserted that the speech in question was strictly commercial, and thus the law must only survive an intermediate level of judicial review.

    For purposes of its analysis, the court assumed that the law regulated only "core commercial speech." The court then proceeded to analyze the constitutionality of the regulation under the familiar four-part Central Hudson test established by the U.S. Supreme Court. Central Hudson Gas & Elec. Corp. v. Public Service Comm’n, 447 U.S. 557 (1980).

    Under Central Hudson, the government can freely regulate commercial speech that is misleading or concerns illegal activities. A regulation that restricts nonmisleading commercial speech about lawful activities is constitutional only if the regulation serves a substantial governmental interest; the regulation directly and materially advances that substantial interest; and the regulation is narrowly drawn and not more extensive than necessary.

    The state asserted that the insurance regulation was designed to prevent misleading and coercive speech by some of the insurance companies. However, the court wrote that it "does not accept the notion that consumers’ lack of intelligence requires the State to deprive them of options or limit their choices to those which the State thinks are acceptable."

    The state then asserted that its regulation served several substantial interests, which included protecting consumer choice; permitting consumers to use independent repair shops; and protecting the existing businesses of smaller repair shops. The court ruled that the state’s substantial interest was limited to regulating the insurance industry and protecting consumers.

    However, the court ruled that the regulation did not directly and materially advance the government’s interest in protecting consumers. Instead, the court determined that the regulation "keeps insureds in the dark about their rights and provides them with a half-truth." The court noted that the insurance companies often have "the expertise to distinguish among repair shops, and may be in the best position to assist customers in this decision." The court also relied on a statement by the state that "the abuse sought to be cured by this bill rarely, if ever, occurs." The state did not refute an assertion made by Allstate that steering occurs in only .0077 percent of processed claims.

    Finally, the court ruled that the law violated the last prong of the Central Hudson test because the law was "unnecessarily and disproportionately broad in the scope of the communications it prohibits."

    The state filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit on June 12, 2000.