Texas Ban On Insurer Body Shops Upheld

Both Allstate and the state of Texas are claiming victory after a federal court ruling last week that upheld provisions of a state law prohibiting insurance companies from owning auto repair shops.

U.S. District Court Judge Ed Kinkeade in Dallas upheld the legislative ban against insurers owning auto repair shops, but struck down the requirement that Allstate must tell claimants of all the options available to them to fix their car.

The Northbrook, Ill.-based personal lines insurer said it was considering an appeal.

John Hohengarten, assistant state attorney general, said he was satisfied that the main provisions of Texas H.B. 1131–the prohibition of insurers owning repair shops–remain intact.

“The Legislature perceived there was a conflict of interest arising when the insurance company, which is going to be paying for the repair, at the same time owns the collision repair facility, and is directing the work to be done and the person assessing the work to be done after the automobile accident,” Mr. Hohengarten said.

In 2001, Allstate purchased Sterling Autobody Centers, which now operates 64 vehicle repair facilities in 16 states.

Two years later, the Texas Legislature imposed a ban on such ownership but allowed Allstate to keep its ownership in a grandfather clause.

Allstate challenged the law in federal court.

Jim Murray, Allstate assistant vice president of claims, said his company will continue to “fight the special interests that are trying to suppress fair competition in a free marketplace.”

“Allstate and Sterling continue to believe Texas H.B. 1131 unconstitutionally limits Texas consumers access to a lawful and legitimate, high quality, customer-focused, cost-effective repair option,” Mr. Murray said.

The ruling prohibits any expansion of the Sterling operation in Texas.

John Eager, claims director for the Property-Casualty Insurers Association of America, said Texas was the only state that has legislated a ban on insurers owning auto repair shops. “Texas is all alone out there,” he said.

Such ownership, he said, is an example of the “vertical integration” that has become a widespread industrial practice in the country.