Allstate Insurance Company, Government Employees Insurance Company, GEICO Casualty Company, GEICO General Insurance Company and GEICO Indemnity Co.,
Serio, in his capacity as Acting Superintendent of Insurance of the State of New York,
2002 NY Int. 45
The issue before us, brought by certified questions from the Second Circuit, is whether various actions taken by the State Department of Insurance, including the promulgation and distribution of the advisory communication Circular Letter 4, complies with Insurance Law § 2610(b). We conclude that they do not.
In the fall of 1992, the Department of Insurance
"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."
The investigation centered upon whether claimants were receiving unsolicited recommendations of specific repair shops at the time claims were made. The Department concluded that all of the insurance companies it had investigated were violating section 2610(b).
Plaintiff Allstate was among the insurance companies
found to be in violation. The Department determined that
Allstate's Priority Repair Option Program was contrary to section
2610(b). Under this program, Allstate employees would inquire
whether claimants had a preferred repair shop. In the event that
a claimant expressed no preference, the Allstate employee would
inquire whether the claimant wanted a recommendation. If the
claimant answered in the affirmative, the agent would recommend a
The Department informed Allstate that it planned to
impose a $100,000 fine unless Allstate agreed to change its
practice. Allstate and the Department reached a settlement (the
Settlement Letter) in which Allstate agreed to modify its
conduct, but denied violating the law. Specifically, Allstate
agreed not to (1) discuss, with certain exceptions, the selection
of repair shops unless it was actually requested by the claimant,
(2) inform claimants that section 2610(b) forbade them to
recommend a shop unless prompted, (3) knowingly distribute
literature referring to any repair facility programs to
policyholders once a claim had been reported, unless actually
requested to do so by the claimant, and (4) display signs or
brochures referring to its Priority Repair Option Program or
otherwise advertise any repair facility programs at its offices
where claimants might be exposed. Allstate could still promote
the program through general mailings, so long as such mailings
were not intentionally sent to policyholders who had reported
Shortly thereafter, the Department issued an advisory
communication to insurance companies, "Circular Letter 4," which
articulated the Department's interpretation of section 2610(b), as
developed in its settlement with Allstate. The Letter, which
No insurer should suggest to their policyholders who present claims that the policyholder should request a recommendation or referral, including by distributing copies of § 2610 itself * * * [S]igns mentioning or describing an insurer's repair program should not be displayed at any drive-in claim facility, sales office or other insurer locations.
Soon after Circular Letter 4 was distributed, plaintiff GEICO submitted to the Department for review and approval, a proposed change to the Automobile Casualty Manual given to its policyholders, which stated:
In consideration of the premium charged for coverage * * * you agree with us that, in the event of a covered loss resulting in damage to your auto, you request that we recommend repair facilities. * * * You agree with us that covered repairs will be completed at a repair shop recommended by us. * * * If you do not have your auto repaired at a repair facility recommended by us, you will be paid the amount of the estimate prepared by us and/or the preferred repairer.
As an incentive to existing and prospective policyholders to agree
to this arrangement, GEICO intended to reduce the cost of
collision coverage by 10% and the cost of comprehensive coverage
by 5%. The Department rejected this proposal as violating the
statutory framework of section 2610.
Allstate and GEICO filed separate suits in the United
States District Court for the Southern District of New York,
(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?
We accepted certification (96 2 931 ) and now answer the first three questions in the negative. Our response to the initial questions makes it unnecessary to address the fourth question regarding the constitutionality of section 2610(b) (see Clara C. v William L., , 96 NY2d 244, 250 ).
Turning to the statute, the State Legislature enacted Insurance Law section 2610(a) in 1973 to "prevent insurers from requiring, as a condition to the payment of losses, that their insureds have collision losses repaired by particular body shops" (Governor's Mem Approving L 1973, ch 909). That section provides:
"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."
(Insurance Law § 2610[a]). The Legislature enacted section 2610(b) in 1974 "to discourage the use of 'referral' body shops by insurers" and to "prevent any insurer, unless expressly requested by the insured, from recommending or suggesting to any claimant that repairs be made in a particular place or shop or by a particular concern" (Bill Jacket, L 1974, ch 743).
The literal language of section 2610(b) restricts when
an insurance company can make recommendations or suggestions that
repairs be performed at a particular shop. The statute does not
Here, both Circular Letter 4 and the Settlement Letter
exceed the statute's requirements and are therefore invalid. The
legislative intent in enacting section 2610 was to protect the
consumer's right to choose and to combat the practice of coercing
or enticing consumers into using repair shops selected by
insurers rather than the ones they preferred to use. Notably,
before the Department issued Circular Letter 4 in 1994, for
nearly 20 years the only related regulatory activity consisted of
two circular letters reminding insurers about the terms of the
law (see New York State Department of Insurance Circular Letters
5 & 9). Moreover, the Department did not show how Circular
Letter 4 advanced the legislative intent of § 2610(b), nor did
the Department evince a factual basis supporting its expansive
construction of the regulation as prohibiting the (1)
distribution to insureds of brochures or other literature that
mention or describe a repair program or a guarantee of repair
programs, (2) the posting of signs at insurer locations that
mention or describe a repair program, (3) the initiating of
communication that might prompt an insured to request a repair
shop recommendation or information from the insurer, (4) the
With respect to the third certified question addressing GEICO's proposed preferred repairer promotion in which in exchange for reduced premium payments, insureds agreed that repairs would be completed at a repair shop recommended by GEICO, the Department contends that it was justified in rejecting the proposal under section 2610(a). The Department further contends that, albeit a closer question, GEICO's proposal also violates section 2610(b) because the proposal, in effect, requires an insured to receive a repair shop recommendation when making a claim.
The Department's rejection of GEICO's proposed
preferred repairer promotion was based on restrictions not
supported by section 2610(b). The promotion does not require
that an insurance company request, recommend or suggest a
particular repair shop while an insurer has an active claim, but
rather requires a prospective claimant to agree to use a
preferred repairer for a reduced contract fee. Thus, the
Department's rejection of the proposal on section 2610(b) grounds
We underscore that the question of whether the proposal could have been properly rejected by the Department pursuant to section 2610(a) is not before us. Notwithstanding the present specificity of defendant's arguments rejecting GEICO's proposal under both sections 2610(a) and (b), the rationale supporting the initial rejection is unclear. Rather, the Department simply stated that the promotion was violative of Section 2610. Thus, as a function of the Department's lack of clarity in its initial rejection of GEICO's request, and because the certified question directs our review to whether section 2610(b) prohibits GEICO's proposed preferred repairer promotion, we do not address whether the Department would have been justified in rejecting the proposal pursuant to section 2610(a).
Subsequent to the Second Circuit's certification to
this Court, the Department has made key concessions that are in
large measure determinative of the issues on appeal before us.
With respect to the first certified question, the Department
concedes that to the extent Circular Letter 4 recites the
restrictions set forth in section 2610(b), it is a valid
interpretation, but to the extent that it does not, it is not a
valid interpretation. In this regard, the Department concedes
With respect to the second certified question, the Department likewise concedes that to the extent the provisions of the settlement between Allstate and the Department mirror section 2610(b), it is a constitutional interpretation. The Department therefore concedes that the following restrictions in the settlement are invalid as beyond section 2610(b): the distribution of literature on Allstate's repair programs; the installation of signs describing Allstate's repair program; and the prohibiting of further discussion of a repair shop once the insured has made a choice.
Accordingly, certified questions 1, 2 and 3 should be
answered in the negative and certified question 4 not answered as
1 In 1983, section 2610(b) was amended so as to exempt all claims involving glass repair alone.
2 The District Court concluded that the Department was referring to section 2610(b), not 2610(a), in its rejection letter.
3 While it is unnecessary for us to reach the State constitutional law question in this case in view of our answers to Questions 1, 2 and 3, we note our view that State constitutional review -- which can enlarge but not diminish rights under the United States Constitution -- as a rule follows, rather than precedes, Federal constitutional review.