Forced Insurer Speech in Connecticut Curbed

MANHATTAN (CN) - Connecticut trampled speech rights in prohibiting automobile insurers from mentioning certain affiliates without also naming a competitor, the 2nd Circuit ruled.

Legislators adopted the law, which took effect Jan. 1, to increase options for consumers needing auto-glass repairs after an accident. They also wanted to help smaller state repair shops not affiliated with a big nationwide network like Safelite Group.

The new law compounded existing legislation in the Nutmeg State that barred auto insurers and claims administrators from requiring where repairs occur. Connecticut also mandated informing consumers that they would not face penalties for choosing a shop other than one affiliated with an insurer.

Ohio-based Safelite and its subsidiary, insurance-claims administrator Safelite Solutions LLC, filed suit, claiming that the law violated the First Amendment and interfered with interstate commerce.

Though U.S. District Judge Janet Arterton refused to enjoin the law, a three-judge panel with the 2nd Circuit reversed Thursday after finding that "the disclosure required ... compels speech that goes beyond the speaker's own product or services."

"Prohibiting a business from promoting its own product on the condition that it also promote the product of a competitor is a very serious deterrent to commercial speech," Judge Ralph Winter wrote for the court. "Moreover, such laws are highly likely to further covertly protectionist, rather than consumer information, goals - in particular by protecting existing businesses, which may be well known, against new entrants."

The 19-page opinion notes that, while companies have First Amendment rights, the protection afforded is less extensive than what individuals enjoy. The Supreme Court set principles for evaluating commercial speech in two cases in the 1980s.

In Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, the court said states and the federal government could prohibit commercial speech that is false, misleading or proposes an illegal transaction.

In Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, the court said commercial speech that is otherwise aboveboard could be restricted if it serves a substantial government interest to do so, but only in a way that is not overly restrictive.

In this case, the trial court denied injunctive relief after improperly using a rational-review test instead of the intermediate-scrutiny test that the case requires, the court found.

Using the Central Hudson test, the District Court should have evaluated the law on four points: whether the speech to be regulated was false; whether the government's interest in regulating it was substantial; whether the law directly advanced the government's asserted interest; and whether the regulation was effective without being excessive.

None of the points would have been found to apply, Winter wrote, leading the panel to conclude the law could not survive intermediate scrutiny.

As a result, the panel vacated the statute, ordered a preliminary injunction on enforcement, and remanded the case to District Court.

Judges John Walker Jr. and Jose Cabranes concurred.

The decision notes that state officials reported no consumer dissatisfaction with the existing law, although glass dealers not affiliated with the Safelite network expressed concern about missing out on business.

Steven Menashi of Kirkland & Ellis in New York City argued for Safelite. Connecticut Assistant Attorney General Matthew Budzik represented the state defendants, Attorney General George Jepsen and Insurance Commissioner Thomas Leonardi.

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