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INSURANCE ADJUSTMENT BUREAU v. INSURANCE COMMISSIONER FOR COMMONWEALTH PENNSYLVANIA (05/20/88)

SUPREME COURT OF PENNSYLVANIA


decided: May 20, 1988.

INSURANCE ADJUSTMENT BUREAU, APPELLANT,
v.
THE INSURANCE COMMISSIONER FOR THE COMMONWEALTH OF PENNSYLVANIA, APPELLEE

Application for Restoration of Injunction Pending Appeal. Emergency Hearing and Oral Argument Requested. Nix, C.j., and Larsen, Flaherty, McDermott, Zappala and Papadakos, JJ. Stout, J., did not participate in the consideration or decision of this case.

Author: Flaherty

[ 518 Pa. Page 212]

OPINION OF THE COURT

On February 28, 1984 the Insurance Adjustment Bureau (the Bureau), a partnership engaged in the business of negotiating casualty loss claims on behalf of insured property owners, filed a complaint in equity addressed to the original jurisdiction of Commonwealth Court seeking, inter alia, a preliminary injunction enjoining the implementation of an amendment to the Public Adjuster and Public Adjuster Solicitor law, Act of December 20, 1983, P.L. 260, No. 72, 63 P.S. § 1601-1608. The amendment, in pertinent part, provides:

No public adjuster or public adjuster solicitor shall solicit a client for employment within twenty-four hours of a fire or other catastrophe or other occurrence which is the basis of the solicitation. With respect to a fire, the 24-hour period shall begin at such time as the fire department in charge determines that the fire is extinguished.

63 P.S. § 1605(a). The Bureau's claim was that this portion of the amendment infringed upon its rights and its customers' rights to freedom of speech, due process, and equal protection under the Pennsylvania and the United States Constitutions.

Commonwealth Court conducted a hearing on April 26, 1984 and granted the Bureau's Motion for Preliminary Injunction. On December 20, 1984 Commonwealth Court overruled preliminary objections filed by the Commonwealth and directed the Commonwealth to answer the complaint and petition. The Bureau then filed a motion for summary judgment, and on August 13, 1987, after a hearing, a three judge panel of Commonwealth Court denied the Bureau's motion for summary judgment, dissolved the preliminary injunction, dismissed the complaint and granted summary judgment in favor of the Commonwealth, 530 A.2d 132. The Bureau's petition for reargument and application

[ 518 Pa. Page 213]

    for injunction pending appeal were denied and on September 10, 1987, the Bureau appealed to this Court from the judgment of Commonwealth Court.*fn1

The Bureau now asserts that the statute's twenty-four hour ban on solicitation impermissibly restricts freedom of speech; that it violates the Bureau's right to equal protection of the law, that it is an unlawful exercise of the police power and an unlawful special law under the Pennsylvania Constitution designed to benefit a special interest; and that the statute is excessively vague in violation of the Bureau's due process right to receive notice of prohibited conduct.

I.

The statute defines "public adjuster" as a person or entity who adjusts loss claims on behalf of an insured, and "public adjustor solicitor" as a person who solicits contracts for public adjusting services. 63 P.S. § 1601. The Bureau claims that insured property owners, following a loss, often fail to take necessary steps to protect their property and receive a prompt and fair claim settlement. An insured may be emotionally distraught, he may be too busy or otherwise committed, or he may not have the ability or understanding necessary to process his own claim. In any event, public adjusters typically arrange emergency protection of damaged property, secure temporary lodging for displaced persons, advise insureds regarding their rights and duties under their insurance contracts, consult with insurance companies, and commence inventory and appraisal of the loss.

The twenty-four hour restriction is significant to public adjusters and public adjuster solicitors because, prior to the amendment, they routinely approached property owners

[ 518 Pa. Page 214]

    within hours of a disaster, explaining their services, and, if a contract was signed, beginning work. They assert that contacting the victims of a disaster within twenty-four hours of the disaster is often necessary in order to locate the property owner before he moves to an unlisted, temporary location because of the disaster.

The Commonwealth, on the other hand, claims that the statute prohibiting solicitation of business by public adjusters or public adjuster solicitors within twenty-four hours of a disaster or fire is permissible, in part, because it is only a time, place and manner regulation. Additionally, the Commonwealth argues that if public adjusters and public adjuster solicitors are allowed to solicit business within twenty-four hours of a disaster they may utilize fraudulent practices at a time when victims of disaster are especially vulnerable, and they might, in the course of pursuing their commercial interests, destroy evidence or otherwise impede a criminal investigation.

The Bureau, however, argues that the public is adequately protected by licensing requirements and by various sanctions which may be imposed against members of the insurance adjustment industry. Public adjusters and public adjuster solicitors are licensed by the Commonwealth, subject to revocation or suspension of their license, and bonded. They may not conduct business without a signed, written contract, and the form of the contract must be approved by the Insurance Commissioner. The statute requires that any contract secured by a public adjuster or public adjuster solicitor may be rescinded within four days of signing, and there are civil and criminal penalties for violation of any provision of the act, including provisions of the act which prohibit, inter alia, misrepresentation, misappropriation of money, or fraudulent practices. 63 P.S. §§ 1603-1608.

II.

Because we agree with the Bureau that the portion of the statute about which they complain impermissibly burdens their right of free speech, we do not address the other

[ 518 Pa. Page 215]

    issues raised, but confine our discussion to the aspect of the case concerning the freedom of speech.

The First Amendment to the United States Constitution provides, in pertinent part:

Congress shall make no law . . . abridging the freedom of speech, or of the press . . . .

The Pennsylvania Constitution provides:

The free communication of thoughts and opinions is one of the invaluable rights of man, and every citizen may freely speak, write and print on any subject, being responsible for the abuse of that liberty . . . .

Art. I, Sect. 7.

Because the United States Supreme Court has addressed problems relating to commercial speech in a series of opinions, our approach here will be to follow the minimum standards of analysis and substantive protection as required by that Court under the federal Constitution. Having completed our analysis based on federal minimum requirements, we will then consider whether the resolution of this particular case is more appropriately treated under the Pennsylvania Constitution or the United States Constitution.

In Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976), the United States Supreme Court, for the first time, brought within the protection of the First Amendment a type of communication which it referred to as commercial speech.*fn2 In this case, a consumer group challenged

[ 518 Pa. Page 216]

    a state law prohibiting pharmacists from advertising the price of prescription drugs.*fn3 The Court observed that speech does not lose its First Amendment protection because it is an advertisement, or because it appears in a format which is sold for profit, or because it solicits a purchase. Id. at 761, 96 S.Ct. at 1825, 48 L.Ed.2d at 358. Speech which does no more than propose a commercial transaction, according to the Court, "is not so removed from any 'exposition of ideas' and from truth, science, morality and arts in general . . ." that it lacks all protection from the First Amendment. Id. This is so because the free flow of commercial information "is indispensable to the proper allocation of resources in a free enterprise system." Id. at 765, 96 S.Ct. at 1827, 48 L.Ed.2d at 360.

The Court also stated, however, that even though commercial speech is protected, it may be subject to some regulation. Time, place and manner restrictions have often been approved, provided that they are imposed without reference to the content of the speech, that they serve significant government interests, and that they leave open "ample alternative channels for communication of the information." Id. at 771, 96 S.Ct. at 1830, 48 L.Ed.2d at 364.

[ 518 Pa. Page 217]

Additionally, the Court pointed out that false, misleading or untruthful speech does not enjoy First Amendment protection, and that the case at bar did not involve the special considerations pertinent to a case in which the proposed transactions or the advertisements themselves are illegal, nor did it involve the the electronic broadcasting media, which, again, requires a special analysis. Id. In fact, the issue involved in Virginia Pharmacy was simply:

     whether a State may completely suppress the dissemination of concededly truthful information about entirely lawful activity, fearful of that information's effect upon its disseminators and its recipients.

Id. at 772, 96 S.Ct. at 1831, 48 L.Ed.2d at 365. Because the prohibition was total, but without commenting on the applicability of its ruling to professions other than pharmacists, the Court held that the advertising ban was impermissible.

These fundamental ideas were reaffirmed seven years later in Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 103 S.Ct. 2875, 77 L.Ed.2d 469 (1983), a case involving a challenge to a federal statute which prohibited the mailing of unsolicited advertisements of contraceptives. Concerning the difference in levels of protection offered commercial and noncommercial speech, the Court stated:

[A]s a general matter, "the First Amendment means that government has no power to restrict expression because of its message, its ideas, its subject matter, or its content." With respect to noncommercial speech, this Court has sustained content-based restrictions only in the most extraordinary circumstances. By contrast, regulation of commercial speech based on content is less problematic. In light of the greater potential for deception or confusion in the context of certain advertising messages, content-based restrictions on commercial speech may be permissible. See Friedman v. Rogers, 440 U.S. 1, 59 S.Ct. 887, 99 L.Ed.2d 100 (1979) (upholding prohibition on use of trade names by optometrists).

463 U.S. at 65, 103 S.Ct. at 2879, 77 L.Ed.2d at 476 (footnotes

[ 518 Pa. Page 218]

    and citations omitted).*fn4

The Bolger Court also discussed the situation in which noncommercial information was joined together with advertising:

We have made clear that advertising which "links a product to a current public debate" is not thereby entitled to the constitutional protection afforded noncommercial speech. A company has the full panoply of protections available to its direct comments on public issues, so there is no reason for providing similar constitutional protection when such statements are made in the context of commercial transactions. Advertisers should not be permitted to immunize false or misleading product information from government regulation simply by including references to public issues.

463 U.S. at 68, 103 S.Ct. at 2881, 77 L.Ed.2d at 478 (footnotes and citations omitted).

Finally, the Bolger Court summarized the process of determining what protection is available for a particular instance of commercial speech:

"The protection available for particular commercial expression turns on the nature both of the expression and of the governmental interests served by its regulation." Central Hudson Gas & Electric Corp. v. Public Service Comm'n of New York, 447 U.S. [557] at 563, 100 S.Ct. 2343 [2350], 65 L.Ed.2d 341 [(1980)]. In Central Hudson we adopted a four-part analysis for assessing the validity of restrictions on commercial speech. First, we determine whether the expression is constitutionally protected. For commercial speech to receive such protection, "it at least must concern lawful activity and not be misleading." Id., at 566, 100 S.Ct. 2343 [2351], 65 L.Ed.2d 341. Second, we ask whether the governmental

[ 518 Pa. Page 219]

    interest is substantial. If so, we must then determine whether the regulation directly advances the government interest asserted, and whether it is not more extensive than necessary to serve that interest. Ibid.

463 U.S. at 68-69, 103 S.Ct. at 2881, 77 L.Ed.2d at 478-79.*fn5

Our first task, thus, is to determine whether the speech activity in this case is commercial or noncommercial; then we must apply the four-part test articulated in Bolger.

Perhaps there is no more difficult problem in the area of commercial speech than to define what distinguishes commercial from noncommercial speech. Justice Stevens points out in his concurring opinion in Bolger that "we must be

[ 518 Pa. Page 220]

    wary of unnecessary insistence on rigid classifications, lest speech entitled to 'constitutional protection be inadvertently suppressed.'" 463 U.S. at 81, 103 S.Ct. at 2888, 77 L.Ed.2d at 487. Justice Stevens goes on:

I agree, of course, that the commercial aspects of a message may provide a justification for regulation that is not present when the communication has no commercial character. The interest in protecting consumers from commercial harm justifies a requirement that advertising be truthful; no such interest applies to fairy tales or soap operas. But advertisements may be complex mixtures of commercial and noncommercial elements: the noncommercial message does not obviate the need for appropriate commercial regulation . . .; conversely, the commercial element does not necessarily provide a valid basis for noncommercial censorship.

Id.

In this case, as in Virginia Pharmacy and Bolger, the speech has both an informational and a commercial character. The informational aspect is that potential customers are customarily told something of the provisions of a typical insurance policy, of ways in which the insurance company's interest may not coincide with the interests of the policyholder, and of some actions which need to be taken under the typical policy to protect the policyholder's interests. The commercial aspect is that the public adjuster or the public adjuster solicitor is attempting to sell his services. A similar situation arose in Bolger, where informational pamphlets accompanied advertisements for contraceptives. One of these pamphlets, entitled "Condoms and Human Sexuality," referred to the seller's brand of condoms by name; the other, "Plain Talk About Venereal Disease," referred to condoms only generically except for a reference on the last page which identified the seller as a distributor of a particular brand of prophylactics. The Court concluded that although no single feature of the informational pamphlets may have compelled the conclusion that they were commercial, the combination of the fact that they were

[ 518 Pa. Page 221]

    conceded to be advertisements, that they made reference to a specific product, and that they were economically motivated supported the conclusion that the informational pamphlets were commercial speech. 463 U.S. at 66-67, 103 S.Ct. at 2879-80, 77 L.Ed.2d at 477-78.

In the present case, as in Bolger, the speech advertises the services of public adjusters as well as informs the potential customer; the speech makes reference to a particular service to be performed by the public adjuster; and it is economically motivated. Keeping in mind Mr. Justice Stevens' concern that commercial speech may not be so easy to distinguish from noncommercial speech in all cases, we conclude, as did the Bolger Court, that the speech at issue in this case is commercial.*fn6

Next, under the four-part test mentioned earlier, our inquiry is whether the expression is constitutionally protected. As a threshold matter, commercial speech deserving of constitutional protection must "concern lawful activity and not be misleading." The Commonwealth expresses the concern in this case that the speech at issue is misleading and that it may be used to perpetrate a fraud, particularly if it occurs immediately after a disaster, when the property owner may be vulnerable to overreaching. That some public adjusters and public adjuster solicitors may mislead potential customers does not, of course, establish that all persons in the public adjusting business commit fraud. In fact, in the absence of evidence that the overwhelming volume of public adjusting activity in Pennsylvania is based on misleading speech, we will treat public adjusting as a lawful business activity, just as we would any other business activity, which may be subject to abuse by a few individuals. See p. 1321, n. 5 supra. The solicitations involved in this case, therefore, are lawful activity which

[ 518 Pa. Page 222]

    have not been shown on this record to be pervasively misleading.*fn7

Next, we must ask whether the governmental interest in regulation is substantial. It is self-evident that the protection of consumers from misleading and fraudulent business activity and the preservation of the scene of a disaster for criminal investigation are substantial governmental interests.

Having said this, however, we must determine whether the regulation directly advances the governmental interest and, lastly, whether it is not more extensive than necessary. Arguably, the ban on speech does advance the government's stated interest, for if there is no commercial speech activity, there cannot possibly be any fraud or misleading, but the real question is whether the regulation is more restrictive than it need be.

Because public adjusters and public adjuster solicitors are licensed and must satisfy the Insurance Commissioner that

[ 518 Pa. Page 223]

    they will "transact business . . . in such manner as to safeguard the interest of the public," 63 P.S. § 1602(6), and because conduct which indicates untrustworthiness may result in the revocation of the license, 63 P.S. § 1606(a)(1-13), it is our view that the regulation of misleading and fraudulent behavior may be more directly accomplished through the enforcement of anti-fraud provisions of the act than through the prior restraint of speech. Moreover, the public is protected by the fact that public adjusters and public adjuster solicitors must be bonded, by the fact that their sales contracts must be in a form approved by the Insurance Commissioner, and by the fact that any person entering into a contract with a public adjuster or public adjuster solicitor may rescind the contract within four days of signing. 63 P.S. § 1605.

Public adjusters and public adjuster solicitors may be fined or have their licenses suspended or revoked for a myriad of reasons, including "material misrepresentation of the terms and effect of any insurance contract; engaging in . . . any fraudulent transaction with respect to a claim or loss . . .; misrepresentation of the services offered or the fees or commission to be charged; conversion; violation of any rule promulgated under the act; and the commission of fraudulent practices. 63 P.S. § 1606(a)(1-13). Furthermore, a violation of any provision of the act shall be a misdemeanor and subject to a fine of $500 to $1,000 for each violation, 63 P.S. § 1607, and the provisions of the statute are supplementary to all other civil and criminal remedies. 63 P.S. § 1608(c). It is plain that persons who have been victimized by misleading speech of public adjusters or public adjuster solicitors have at their disposal a number of administrative, civil and criminal remedies. In light of this arsenal of remedies, it is our view that the imposition of prior restraints on the speech of public adjusters and public adjuster solicitors is unjustified.

The Commonwealth, of course, asserts that the restrictions involved in this case are only time, place and manner restrictions, since public adjusters and public adjuster solicitors

[ 518 Pa. Page 224]

    are not banned altogether from soliciting business. Although it is true that the restriction in this case affects only twenty-four hours, the period of time immediately following the disaster may be the only time during which the property owner can be located before moving to an unknown address because of the disaster which has affected his property. Balancing the governmental interest of protecting persons who have just suffered the trauma of losing their property from potentially misleading speech of some public adjusters against that of the public adjusters and public adjuster solicitors in informing a likely prospect of the nature and value of their services, we find that the private business interests are more significant in light of the other remedies available, should there be fraud or misleading speech. In short, the Commonwealth's goals in this case are more appropriately accomplished through regulation of practices than through prior restraint of speech.

III.

As we stated earlier, our approach in this case has been to follow the federal analysis as set out by the United States Supreme Court in order to determine whether the statute meets the minimum federal standards as required by that Court. It is axiomatic, of course, that the states, once they have complied with federal constitutional requirements, are free to impose their own more stringent requirements pursuant to their own constitutions.

The federal analysis requires that a court determine, ultimately, whether the regulation is more extensive than necessary to accomplish a legitimate, important governmental purpose. Fundamentally, this determination requires a balancing of the interests of government against those of the entity or individual whose speech has been regulated, and this balancing will depend upon the perspective of the balancer. Reasonable minds can disagree as to how extensive any given regulation should be with respect to its purpose, and the perspective of the United States Supreme Court on this issue may not be the same as that of a court

[ 518 Pa. Page 225]

    within a state jurisdiction. The differences of opinion may be based in part on differing jurisprudential theories of the function and responsibilities of government, but they may be based also on a regional, versus a national perspective.

Our perspective is that in the commercial speech area, we should tread carefully where restraints are imposed on speech if there are less intrusive, practicable methods available to effect legitimate, important government interests. Here, the balance of interests should be resolved in favor of the challenger because less intrusive methods were available to effect the governmental objectives.

We hold, therefore, that the Pennsylvania Constitution, Article I, Section 7, will not allow the prior restraint or other restriction of commercial speech by any governmental agency where the legitimate, important interests of government may be accomplished practicably in another, less intrusive manner. Since the legitimate governmental goals in this case could be accomplished by enforcement of civil, criminal and administrative remedies already in place, Commonwealth Court was in error in upholding the validity of the statute's restriction on speech.

The order of Commonwealth Court is reversed.

Disposition

The order of Commonwealth Court is reversed.


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