Lead Opinion
The New York State Department of Insurance
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,
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
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.”
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).
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 violated New York law, but, nevertheless, agreed to revise its procedures. (1) Allstate agreed that once a claim was reported, it would not, unless requested to do so, mention or recommend a repair facility, or list suggested repair facilities; (2) Allstate promised not to inform claimants about the requirements of § 2610(b) unless asked to do so; (3) Allstate could continue to promote and advertise the PRO Program in mailings and brochures made available to prospective customers, applicants, and policyholders;
On April 7, 1994, the Department issued “Circular Letter 4,” which articulated its interpretation of § 2610. A Circular Letter “sets forth the Insurance Department’s views on a particular matter and is circulated to insurance companies.” Appellant’s Brief at 14. Circular Letter 4 contains roughly the same terms as the Settlement Letter. Most important, it states that:
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....*148 [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.
Circular Letter 4 thus prohibits various ways of soliciting requests for recommendations to preferred shops.
Soon after Circular Letter 4 was distributed, GEICO submitted to the Department proposed revisions to its Automobile Casualty Manual (“the proposal”). The Manual was to include a section entitled “Preferred Repairer,” which stated, in pertinent part:
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. (emphasis omitted).
GEICO insisted that § 2610 only prohibited unsolicited recommendation of repair shops to individuals with “live” claims. Because the proposed policy manual sought consent before any accident occurred, it did not, in GEICO’s view, violate the statute or Circular Letter 4.
The Department rejected GEICO’s proposal. The Department explained that this ex ante consent scheme did not comport with the requirements of § 2610. GEICO resubmitted its proposal and requested further consideration; it was again rejected.
C. Proceedings Below
Allstate and GEICO filed suit separately in the United States District Court for the Southern District of New York. Allstate alleged that § 2610(b) violated its free speech rights under the First and Fourteenth Amendments to the U.S. Constitution and under the New York State Constitution. It also claimed that the Settlement Letter and Circular Letter 4 im-permissibly restricted its commercial speech rights under the U.S. and New York Constitutions. GEICO made parallel claims, alleging specifically that the Department’s rejection of its proposal violated its commercial speech rights under the U.S. and New York Constitutions. The plaintiffs sought declaratory judgments that § 2610(b) was unconstitutional as applied to them. In addition, Allstate asked to have the Settlement Letter made void, and GEICO requested that the Department’s rejection of its proposal be overturned. Finally, the parties sought injunctions preventing the enforcement of the Settlement Letter and Circular Letter 4.
Though the suits were filed separately, the district court disposed of them in a single opinion. See Allstate,
Commercial speech that is neither unlawful nor misleading may be regulated*149 by a government only if: (1) the government asserts a substantial interest in support of its regulation; (2) the government demonstrates that the restriction on commercial speech directly and materially advances that interest; and (3) the regulation is “narrowly drawn” and not more extensive than necessary to serve the substantial government interest.
Allstate,
The district court first held that the speech regulated by § 2610(b) and by the other challenged actions of the Department (i.e., the Settlement Letter, Circular Letter 4) was neither unlawful nor misleading. Judge Casey also found that “the State has a substantial interest in regulating the insurance industry and in protecting consumers.” Id. at *22. He concluded, however, that § 2610(b) did not directly and materially advance this interest. The court determined that “[t]he Department set forth no reliable proof that consumers experience any confusion about their rights in the repair shop selection process, or in any way feel coerced or intimidated by insurers.”
The district court found that the state’s interest in protecting consumers from being compelled by insurance companies to select a particular repair shop was adequately served by § 2610(a). § 2610(b) was, in essence, held to be overkill. Id. at *25. Accordingly, the district court issued an order awarding declaratory judgment to the plaintiffs, enjoining the Department from enforcing § 2610(b) and Circular Letter 4 against Allstate and GEICO, and annulling the Settlement Letter executed between Allstate and the Department.
This appeal followed.
DISCUSSION
I
It is axiomatic that the federal courts should, where possible, avoid reach
This canon of constitutional avoidance manifests itself in a variety of ways. Thus, the courts will take pains to give a statute a limiting construction in order to avoid a constitutional difficulty. See, e.g., Able v. United States,
Where a decision is to be made on the basis of state law, however, the Supreme Court has long shown a strong preference that the controlling interpretation of the relevant statute be given by state, rather than federal, courts. See, e.g., Arizonans for Official English v. Arizona,
Two practices in particular — “Pullman abstention” and certification — can be used by federal courts to avoid (a) premature decisions on questions of federal constitutional law, and (b) erroneous rulings with respect to state law.
Certification serves similar purposes. It permits federal courts to ask the highest court of a state directly to resolve a question of state law and to do so while the federal suit is pending. See, e.g., N.Y. Comp.Codes R. & Regs. tit. 22, § 500.17(a) (1999) (“Whenever it appears to the Supreme Court of the United States, any United States Court of Appeals, or a court of last resort of any other state, that determinative questions of New York law are involved in a cause pending before it for which there is no controlling precedent of the Court of Appeals, such court may certify the dispositive questions of law to the Court of Appeals.”).
In Arizonans, the Supreme Court indicated that certification is usually preferable to abstention. The Court explained:
Certification today covers territory once dominated by a deferral device called “Pullman abstention”.... Designed to avoid federal-court error in deciding state-law questions antecedent to federal constitutional issues, the Pullman mechanism remitted parties to the state courts for adjudication of the unsettled state-law issues.... Certification procedure, in contrast, allows a federal court faced with a novel state-law question to put the question directly to the State’s highest court, reducing the delay, cutting the cost, and increasing the assurance of gaining an authoritative response.
The desirability of certification in such circumstances becomes apparent when one considers how federal appellate courts regularly behave when presented with analogous cases involving federal statutes. If a federal agency had issued, under a federal statute, regulations — like the ones before us — that raise possible constitutional difficulties, and the parties attacked those regulations as unconstitutional as applied to them, and if we believed that the federal statute might be read as not countenancing the regulations in question, we would surely not rule on whether the underlying federal statute was constitutional until we had examined in depth the correctness of that “saving” construction. Where interpretation of a statute might resolve the case, and thereby obviate the need for any inquiry into constitutional questions, a ruling on the constitutional issues without prior examination of the statute’s scope and meaning would be viewed as an extraordinary bit of overreaching. And certification does no more than give the highest court of a state an opportunity to do with a state law what we would do, as a matter of course, were we dealing with a federal statute.
It is not the case, moreover, that certification is appropriate only where a federal court, applying federal rules of construction, can see a proper way to construe the relevant statute so as to eliminate any constitutional defect. It may well be that the courts of the relevant state are less constrained than is the federal judiciary with respect to statutory interpretation. It is possible, that is, that under the applicable state law, state courts have more flexibility and broader interpretive power than do the federal courts. In such circumstances, federal courts ought not to deprive the state courts of the opportunity to construe their own statutes, using the interpretive tools, presumptions, and standards they deem proper. For this too would infringe on the sovereign authority of the states.
II
Neither the text of Insurance Law § 2610(b) nor the case law from New York provides a conclusive answer to the question of whether the Department’s construction of that provision — as manifested in Circular Letter 4, the Settlement between the Department and Allstate, and the rejection of GEICO’s new policy — is a proper one. Indeed, § 2610(b) has never been interpreted by the New York courts at all. Similarly, we have no information as to whether the New York Constitution would bar one or another of these restrictions on commercial speech grounds, should the statute be read to permit therm In this respect, we note that, unlike Tunick, the validity of the regulations under the New York Constitution has been raised, briefed, and argued by the parties. See Tunick,
A decision of the Court of Appeals on these questions of state law might well resolve all the claims brought by the parties in the case before us, and do so without requiring any decision as to the validity of the statute under the United States Constitution.
There are, moreover, several other factors, specific to this case, that make certification particularly appropriate. First, taking up the question of whether § 2610(b) is constitutional inevitably requires this court to think up hypothetical regulations or actions under the statute that might possibly be valid under the Central Hudson test. Such an inquiry is not only difficult and premature, but its very abstract nature makes suspect any conclusion that might result from it. Second, the Attorney General of the State of New York has strongly argued, both at oral argument and in the State’s brief, that a saving construction of § 2610(b) is possible. See Appellant’s Brief at 53 (“[Tjhere is a substantial question as to whether under New York law § 2610(b) may properly be construed to prohibit the practices referred to in the Settlement Letter and Circular Letter 4.”).
CONCLUSION
Accordingly, we hereby respectfully 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?
The certified questions may be deemed expanded to cover any further pertinent question of New York law involved in this appeal that the Court of Appeals chooses to answer. This panel retains jurisdiction to consider all issues that may remain before us once the Court of Appeals has either provided us with its guidance or declined certification.
It is therefore ordered that the Clerk of this court transmit to the Clerk of the Court of Appeals of the State of New York a Certificate, as set forth below, together with a complete set of the briefs, appendices, and record filed in this Court by the parties.
The foregoing is hereby certified to the Court of Appeals of the State of New York, pursuant to 2d Cir. R. § 0.27 and N.Y. Comp. R. & Re^s. tit. 22, § 500.17, as ordered by the United State Court of Appeals for the Second Circuit.
Notes
. The named defendant, Gregory V. Serio, is no longer the Acting Superintendent of Insurance for the State of New York. Accordingly, we will refer to the Department of Insurance as the appellant in this case.
. Repair shops to which claimants are “steered” are known as “preferred shops” or “referral shops.”
. Independent repair shops — smaller repair shops that are less likely to be preferred shops and that tend to lose business as a result of steering arrangements between insurers and large repair shop franchises — contend that insurance companies’ use of preferred shops undermines the quality and safety of repair services. These independent repair shops complain, moreover, that steering stifles competition and threatens the ability of smaller shops to survive.
. The exception for claims “solely involving window glass” was inserted in 1983. It was added (by overwhelming majority votes in both houses of the State Legislature) because it was determined that “the insurer or its local agent is in the best position to recommend a reliable repair shop in the community which will perform the work at competitive and reasonable rates.” Letter of June 21, 1983 from Assemblyman Howard L. Lasher to Governor’s Office.
. Allstate representatives were provided with a "script” mapping out the desired progress of such a conversation with a claimant.
. The letter acknowledged that mass mailings would cause certain policyholders with pending claims to receive PRO materials; it was agreed that this was acceptable, but that Allstate would not knowingly send any PRO materials to claimants.
.Allstate’s new "script” for its employees reflects these changes in procedure.
. GEICO informed the Department, moreover, that it believed that savings of 5%-10% could be passed along to consumers as a result of this new policy.
. Before turning to the Central Hudson test, the district court rejected a handful of affirmative defenses that had been interposed by the Department, finding that the plaintiffs had standing to sue, that neither estoppel nor laches prevented the suits, and that the statute of limitations had not expired. Allstate,
Judge Casey briefly addressed the question of whether § 2610(b) regulated only commercial speech, or whether it reached non-commercial speech as well. Though he expressed
. Earlier in the opinion, Judge Casey had deemed inadmissible evidence presented by the Department in support of the notion that policyholders were uniquely vulnerable at the time of filing a claim and that they might be coerced into selecting a particular repair shop as a result of practices like those prohibited under Circular Letter 4. Judge Casey determined that the evidence was anecdotal and unreliable, and, therefore, inadmissible hearsay. Allstate,
. Of course, federal courts may, by interpreting state law, create friction even when they read that law correctly. There is, after all, an intrusion into slate sovereignty implicit in the
. The several states apply divergent rules with respect to certification. Unlike New York, the Supreme Court of Connecticut also permits certification from U.S. District Courts, see CT R. RAP. § 82-1 (1998). The Supreme Court of New Jersey allows certification from the Third Circuit only. See N.J. R.A. R.2:12A-1 (2000).
. Of course, it is not the case that certification (or abstention) is appropriate whenever (1) a state law is challenged on federal constitutional grounds, (2) the highest court of the state has not interpreted the relevant statute, and (3) a saving construction (i.e., one that would permit avoidance of the constitutional issue) is possible. See Tunick,
. It has been suggested that certification unduly burdens the state courts. See e.g., Elliott Assocs. L.P. v. Banco de la Nacion,
. These claims, moreover, cannot be dealt with on straightforward Eleventh Amendment grounds because, in addition to seeking an injunction, the plaintiffs asked for a declaratory judgment. And while an injunction might well violate the Eleventh Amendment, see Pennhurst,
. While the parties may have an interest in a finding that the statute is facially invalid, they have not expressly asked for such relief. And, to the extent that the parties do present a facial challenge to § 2610(b), it is an “over-breadth” challenge, and such a challenge cannot lie with respect to a regulation of commercial speech. See Metromedia, Inc. v. City of San Diego,
.Notably, Allstate had already proposed a saving construction. See Letter of April 7, 1983 from David R. Leonard, Counsel to All-
. See 15 15 U.S.C. § 1012 (McCarron Ferguson Act) ("(a) The business of insurance, and every person engaged therein, shall be subject to lire laws of the several States which relate to the regulation or taxation of such business; (b) ... No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance.”)
. Because the state has agreed, pending a decision of the issues here presented, not to enforce the challenged regulatory actions, see New York Insurance Department Circular Letter No. 16 (May 10, 2000), we are not faced with the question of whether and how to protect the plaintiffs asserted constitutional rights in the interim. See, e.g., Tunick,
Concurrence Opinion
The New York State Consumer Protection Board said as to section 2610(b), when it was proposed, that:
The bill prohibits a practice which has been reported to the Board wherein an insurer, having a tie-in agreement with an auto body repair shop, will unduly coerce a consumer to have the repairs effected at a shop selected by the insurer.
According to the New York Insurance Department, the “complaints received by this Department indicate that the consumer is left to deal with a body shop which has no interest in satisfying its customers.” Thus, section 2610 in both of its subsections is a consumer protection law prohibiting insurers from requiring repairs to be made at a particular shop and from coercing their insureds to have the repairs effected at a particular shop. This seems to be very much a regulation of the business of insurance which by the MeCarron-Fer-guson Act is subject to the laws of the several states and cannot be impaired or superseded by any act of Congress. See 15 U.S.C. § 1012 (2000). Circular Letter 4 simply spells out for insurers what they can and cannot do as to “steering”:
Insurers may maintain a repair program and in the ordinary course of business disseminate directly or through their agents information and literature fully describing the program’s existence and benefits, to prospective customers, to applicants and to policy holders. It is understood that sales or renewal materials of this kind may reach a policy holder who has a pending claim. Consistent with paragraph 1 above, however, literature referring to any repair program or insurer guarantees concerning repairs, should not be knowingly distributed to a policy holder once a claim has been reported.
It seems to me that section 2610(b) and the interpretation of it that is contained in Circular Letter 4 are entirely consistent with the First and Fourteenth Amendments to the U.S. Constitution in that there is a substantial state interest in protecting the right of insureds to select their own repair shop. Indeed, twenty-nine states other than New York also have laws
My colleagues prefer, however, to take the cautious — some would say “prudent”— course of certifying to the New York Court of Appeals the questions they propose. I would hope that the very act of certification, if the New York Court of Appeals grants it, will not induce that court to give a narrow interpretation to what the New York legislature thought was a salutary consumer protection bill merely on the basis that it conceivably could fall under the protection of commercial free speech. Certainly the GEICO case presents a proposed endorsement which, in my view, clearly violates not only section 2610(b) but also section 2610(a) in that it requires the insured to agree that “covered repairs will be completed at a repair shop recommended by us” with the penalty that, if the insured does not do so, he “will be paid the amount of the estimate prepared by us and/or the preferred repairer.”
I concur with Judge Calabresi that the case should be certified, with the caveats hereby expressed.
Concurrence Opinion
I concur in the judgment certifying the questions set forth in the conclusion to Judge Calabresi’s opinion. I concur in only as much of Judge Calabresi’s reasoning as justifies certification as appropriate in cases where: (1) there is an unresolved question of state law that will (2) conclusively determine the outcome of the litigation and (3) avoid federal constitutional questions when (4) the delays associated with Pullman abstention are great and potentially outcome-determinative. Where the circumstances of a case would support Pullman abstention, certification serves the same purpose more efficiently.
Because New York Insurance Law § 2610(b) and its application to Allstate and GEICO in this case raise serious federal constitutional questions under prevailing commercial speech doctrine, I believe that certification is the appropriate course.