Texas Sen. John Carona, speaking as part of a panel discussion at the event, said he planned to introduce legislation banning insurer-owned shops because he saw such ownership as a clear conflict of interest. He predicted that insurer ownership of shops would lead to the same problems and consumer backlash that "managed health care" has.

"Why would an insurance company own an interest in a body shop today except to repair cars at a cheaper price, which more often than not will lead to lesser quality," Carona said.

Two months later, Carona introduced legislation that went on to be passed by both chambers of the Texas legislature and was signed into law by Gov. Rick Perry on June 20, 2003.

The Texas law did not prohibit insurer-owned shops outright, allowing those facilities currently owned by insurance companies to remain in business if they meet certain criteria. However, the law did not allow any insurer to expand beyond the facilities in operation or under construction as of April 15, 2003.

Two months after being signed into law, the Texas legislation was the subject of a 43-page lawsuit brought by Allstate, claiming that they were the victims of a special-interest law brought into existence by a coalition of 4,500 Texas shops whose "protectionist table-pounding and political muscle drowned out all efforts to educate legislators about the auto repair industry's persistent problems."

Because the law limited the ability of an insurer to steer claimants to shops owned by the insurer, Allstate said in its suit, it could have the inadvertent effect of actually misleading consumers. By requiring the insurer to recommend independent shops to the same extent they recommend Sterling facilities, Allstate said that "policyholders and claimants will be misled into believing that Sterling and local auto body shops are of equal quality." This lack of information, Allstate argued, could lead a policyholder to choose "a less efficient, or worse, fraudulent, local body shop."

Consumers could be better served at insurer-owned shops, the lawsuit stated, because the claims-handling and repair processes are better integrated, allowing faster average repair times. The lawsuit said that even the legislation's supporters do not cite "any abuse or wrongdoing by insurer-affiliated collision repair shops."

"No evidence suggested that customers were cheated, received lower quality, or (were) otherwise harmed by insurer ownership of Sterling," the filing stated.

The lawsuit also claimed that the fact that the law allows anyone, including competing shops, to sue--with civil penalties of $1,000 to $5,000 a day per violation--if they are harmed by violations of the law is evidence that the law is designed more to protect local body shops than consumers.

Perhaps most important, one of the main arguments in the suit was that the law violates the First and 14th Amendments of the U.S Constitution. The suit said that Sterling is engaging in legitimate commercial speech when it explains to its customers the problems associated with local body shops and the benefits of working with Sterling.

In December 2003, a U.S. District Court granted Allstate's request for an injunction preventing the law from going into effect until a court decided the case.

In March 2006, 18 months after the case was heard, U.S. District Judge Kinkeade ruled that the law was constitutional, other than a few of the restrictions the law placed on insurer-owned shops. Kinkeade agreed that some portions of the regulations violated Allstate's free speech rights, thus permitting Allstate to continue to recommend its Sterling shops; for the two companies to conduct joint marketing; and for Sterling to use the Allstate logo in its advertising. The rest of the regulation stood pending Allstate's appeal.

That appeal came the following month, but in August 2007, the U.S. Fifth Circuit Court of Appeals upheld Kinkeade's ruling. Allstate then appealed to the U.S. Supreme Court, which last month announced it would not hear the case, effectively ending the appeals process and leaving stand the Texas ban on insurer-owned shops.

 
Moving forward
There will be two primary things to watch in the aftermath of the Supreme Court ruling in February. First, what will it mean for the Sterling chain, as well as that of Caliber Collision Centers, a 63-shop chain--about half of which are in Texas--whose investors include two insurance companies.

Neither chain has grown significantly since the 2003 Texas law was enacted at least in part, most observers said, because of the uncertainty of whether state bans like the one in Texas could prevent them expanding or even entering some states.

With most state legislatures already in session, it will be also be interesting to watch which if any states introduce Texas-style bans on insurer-owned shops. Though it seems almost certain many will in 2009, Redding said he wouldn't be at all surprised to see such legislation pop up at some state capitols this year.

"Some states are discussing it," he said.

"We are very happy that the U.S. Supreme Court did not hear Allstate's appeal," said David McClune, executive director of the California Autobody Association (CAA). "This will be very beneficial to other states looking to pass similar legislation."

In 2002, the CAA supported legislation, which was passed by the state Senate but not the Assembly that would have placed restrictions similar to those in Texas on insurer ownership of shops in California.

"The CAA has been waiting for this final decision and will have discussions of possibly introducing legislation in the near future," McClune said last month.

"We will be meeting with our…lobbyist…seeking guidance and counsel to move forward quickly on this issue," Ray Fisher, executive director of the ASA of Michigan, told his members in late February. "Michigan will be joining California, Massachusetts, and Minnesota with efforts put forth while the iron is hot."