Shortly after the legislation became law, Allstate challenged HB 1131 in court. "HB 1131 does not violate the dormant Commerce Clause and is constitutional, with the exception of the speech restrictions," concluded District Judge Ed Kinkeade, who presided over the proceedings.
Texas Attorney General Greg Abbott's office defended HB 1131 believing that it was constitutional and would be upheld by the Federal District Court. Speaking for the Attorney General's office, attorney Jack Hoengarten stated that "the district court for the most part upheld this position, finding that the prohibition on insurance companies owning collision repair shops was constitutional. The Court did, however, strike down four subsections in the so-called code of conduct concluding that those provisions violated Allstate's first amendment rights. The thrust of HB 1131 - that is, the prohibition on insurer ownership of repair shops - remains intact and in effect."
Bob Redding, ASA Washington, D.C., representative, said: "We are very pleased with the ruling. This new law in Texas demonstrates what collision shop owners can do when they join together with a common message under a single banner. Texas repairers should be very proud and look to how they can continue to improve the collision repair industry. This decision will have ramifications in the collision industry throughout the United States. Many state collision leaders were watching this decision to determine if similar legislation would be introduced in their states."
Allstate declared partial victory with the split decision delivered by the judge, who affirmed that while portions of Texas House Bill 1131 are constitutional, certain sections of the law violate Allstate's and Sterling's First Amendment rights to free speech. Allstate and Sterling are evaluating all options with respect to this ruling, including an appeal.
"The judge has upheld our constitutional right to free speech, meaning that Allstate and Sterling can communicate and market the benefits of an insurer-owned auto repair facility with our customers and claimants in the State of Texas," said Jim Murray, assistant vice president of claims for Allstate. "However, we strongly disagree with the judge's decision to uphold provisions of Texas HB 1131 which we believe violate the commerce clause of the U.S. Constitution."
While Allstate and Sterling must abide by the requirements of Texas HB 1131, including not opening any new Sterling stores in Texas, Allstate remains committed to Sterling and its employees. Sterling continues to provide the opportunity of a superior vehicle repair experience for Allstate customers and claimants. This is shown in a recent independent customer satisfaction survey where Sterling performs better than the industry in Texas, reported Allstate.
"Allstate and Sterling continue to believe Texas HB 1131 unconstitutionally limits Texas consumers of access to a lawful and legitimate, high-quality, customer-focused, cost-effective repair option," said Murray. "We will continue to fight the special interests that are trying to suppress fair competition in a free marketplace."
Allstate and Sterling filed a legal challenge to Texas HB 1131 on August 29, 2003, alleging that Texas HB 1131 was unconstitutional because it violates both Allstate's and Sterling's First Amendment right of free speech and the commerce clause by interfering with interstate commerce.
Will Sterling survive in Texas?
Regarding the judge's decision, Collision Week reported that "Though the ruling will allow Allstate to operate its existing 15 Sterling stores in Texas, Allstate may close them after all. Sterling representatives testified that Sterling stores went from making a $2 million profit before the enactment of HB 1131 to losing $2 million dollars after HB 1131 due to the limitations placed on the organization for gaining increased efficiencies of scale."
Allstate spokesman Michael Siemienas categorically denied that statement as he reiterated Murray's comments. He expressed that Allstate stands behind Sterling as a facility where Allstate can provide customers and claimants the option of a superior automotive claims experience with guaranteed high-quality repairs.
To further review the decision, please go to www.TakingTheHill.com.