Supreme Court Rejects Allstate Challenge to Texas Repair Shop Law

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The U.S. Supreme Court in late February 2008 rejected Allstate Corp.’s challenge to a Texas law that restricts insurance company ownership of auto collision repair shops.

Allstate sought review of its case at the high court, arguing the Texas law violates the Constitution. A federal appeals court has upheld the 2003 law, which bars Allstate from opening new collision repair shops.

Allstate purchased Sterling Collision Centers in 2001, a move that gave it nationwide entry into the automobile repair business. In total, it owns 15 repair shops in the state. Portions of the Texas law restricting Allstate from participating in the business activities of those shops were rejected by a U.S. District Court.

The company has argued that the law, which aims to protect smaller in-state collision repair companies from insurance industry competition, violates restrictions the Constitution places on state regulation of interstate commerce.

“Texas in particular has legislatively shuttered its borders against interstate competition,” Allstate said in its appeal. “This time, Texas targeted an intrinsically interstate initiative developed to improve the automobile accident repair business.”

A U.S District Court rejected Allstate’s challenge, however. The 5th U.S. Circuit Court of Appeals in New Orleans followed suit, saying the law was “based not on domicile but on business form” and didn’t violate the Constitution.

“This court should deny the petition because the challenged law is one that relates to the ‘business of insurance’ and thus is not subject to scrutiny under the dormant Commerce Clause,” said the Automotive Service Association and Consumer Choice in Autobody Repair. The two Texas-based advocacy groups are involved in the lawsuit and support the law restricting insurance company ownership of repair centers.